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Question:
Discuss about the Corporate Governance and Value Creation for Evidence from Private Equity.

 
Answer:
Case Study A
Land Securities Group Plc:
Land Securities Group Plc has been founded in the year 1944 i.e. about 72 years ago in London (Shiller 2012). It is a Real Estate Investment Trust (REIT) traded as LAND in the London Stock Exchange (LSE). It is headquartered at London in the United Kingdom. The main products of the particular organization include the property investment and property development. It has been found that within the country U.K., the organization Land Securities Group Plc is considered as the largest commercial property for development and investment. The REITs were introduced within the country United Kingdom in the year 2007 and in the month of January. Thus, after the entry of the REITs within the specified country, the particular company transferred into the status of Real Estate Investment Trust (Smith and Wakeman 2011). It has been found from the annual report of the company Land Securities Group Plc for the year 2015 that the total income of the firm was £ 2416.9 million, the operating income of the organization for the year 2015 was £ 2346.7 million (Thompson 2012). Lastly, it has also been found that the total revenue of the organization Land Securities Group Plc was £ 770.4 million as per the annual report of the firm for the year 2015.

The aim of this report is to calculate the daily return of the organization Land Securities Group Plc on the basis of the historical stock prices of the particular firm on one hand and also to make detailed analysis reports on the two case studies A and B. the other objectives of this report are to plot the daily return of case study A and also to prepare a report on the planned investment that uses payback. In this report, for calculating the daily return, the historical stock prices of the organization Land Securities Group Plc has been considered for whole one year i.e. starting from 1st January of the year 2015 to 31st December of the same year. As per the requirement, 250 observations have been observed and calculated. Thus, for 250 days, the close prices of the shares of the company Land Securities Group Plc have been noted with the aim to calculate the daily return of the organization. The daily return of the organization Land Securities Group Plc has been calculated based on the formula (P1 – P0) / P0. In this formula, P0 is the close price for the previous day and P1 is the close price of the present day (Berk and DeMarzo 2011). The following calculations help to understand the daily return of the organization Land Securities Group Plc better, where mode, mean, median, variance, standard deviation, frequency distribution and covariance have been calculated for thorough analysis of the financial condition of the particular firm (Drury 2012).

Date

Open

High

Low

Close

Volume

Adj Close

Daily Return

12/31/2015

1189

1193

1177

1177

600200

1147.064

-0.009259259

12/30/2015

1200

1204

1182

1188

1203600

1157.784

-0.011647255

12/29/2015

1193

1203

1187.04

1202

1349600

1171.428

0.013490725

12/28/2015

1186

1186

1186

1186

0

1155.835

0.000000001

12/25/2015

1186

1186

1186

1186

0

1155.835

0.0000001

12/24/2015

1186

1187

1178.9

1186

162700

1155.835

0.003384095

12/23/2015

1173

1182

1159.86

1182

1076000

1151.937

0.016337059

12/22/2015

1172

1178

1159

1163

1287900

1133.42

0.001722653

12/21/2015

1172

1190

1161

1161

1013300

1131.471

-0.00853971

12/18/2015

1185

1191

1171

1171

2385000

1141.216

-0.012647555

12/17/2015

1200

1208.85

1182

1186

1516300

1155.835

-0.00084246

12/16/2015

1160

1189

1157

1187

2429600

1156.809

0.023275862

12/15/2015

1148

1165

1140

1160

3010800

1130.496

0.01754386

12/14/2015

1157

1179.6

1140

1140

1828400

1111.005

-0.014693172

12/11/2015

1185

1188

1157

1157

2438000

1127.572

-0.024451939

12/10/2015

1190

1202.9

1185

1186

2090700

1155.835

-0.010016694

12/9/2015

1203

1212

1198

1198

2876300

1167.53

-0.004983389

12/8/2015

1216

1221

1204

1204

1446900

1173.377

-0.011494253

12/7/2015

1214

1234

1209

1218

1463700

1187.021

0.009950249

12/4/2015

1196

1210

1186.85

1206

3071700

1175.326

0.007518797

12/3/2015

1232

1243

1197

1197

2793700

1166.555

-0.037007241

12/2/2015

1248

1253

1241

1243

2016700

1203.442

0.001611604

12/1/2015

1232

1244

1228

1241

1769000

1201.506

0.008123477

11/30/2015

1234

1239

1225

1231

1893400

1191.824

-0.00162206

11/27/2015

1221

1234

1216.3

1233

1037200

1193.761

0.006530612

11/26/2015

1235

1235

1220

1225

1131300

1186.015

-0.005681818

11/25/2015

1215

1241

1215

1232

1605500

1192.792

0.015663644

11/24/2015

1222

1222

1201.3

1213

2243600

1174.397

-0.008986928

11/23/2015

1240

1244

1223

1224

1460000

1185.047

-0.019230769

11/20/2015

1258

1258

1243

1248

2192900

1208.283

-0.0016

11/19/2015

1248

1256

1241

1250

1989400

1210.22

0.008878128

11/18/2015

1245

1249

1234

1239

1501400

1199.57

-0.005617978

11/17/2015

1243

1255

1238

1246

2626100

1206.347

0.01300813

11/16/2015

1215

1230

1208

1230

1590900

1190.856

0.008196721

11/13/2015

1217

1223

1207

1220

2886600

1181.174

-0.000819001

11/12/2015

1239

1250

1221

1221

2231900

1182.143

-0.016116035

11/11/2015

1249

1249

1223

1241

4224600

1201.506

-0.00160901

11/10/2015

1270

1273

1228

1243

3545700

1203.442

-0.027386541

11/9/2015

1308

1312

1278

1278

2771500

1237.329

-0.02293578

11/6/2015

1328

1329

1305

1308

1694100

1266.374

-0.011337868

11/5/2015

1305

1324

1299

1323

2037300

1280.896

0.017692308

11/4/2015

1323

1327

1299

1300

2671200

1258.628

-0.017384732

11/3/2015

1340

1340

1320

1323

1676500

1280.896

-0.010471204

11/2/2015

1330

1343

1330

1337

1341400

1294.451

-0.001493652

10/30/2015

1341

1349

1336.3

1339

2146300

1296.387

-0.002235469

10/29/2015

1350

1352

1336

1342

1595100

1299.292

-0.00739645

10/28/2015

1334

1355

1334

1352

1162000

1308.974

0.013493253

10/27/2015

1330

1339

1329

1334

1128800

1291.546

-0.000749064

10/26/2015

1336

1343

1327

1335

1698600

1292.515

-0.002987304

10/23/2015

1339

1346

1334

1339

1623000

1296.387

0.002245509

10/22/2015

1318

1338

1312

1336

1487200

1293.483

0.015197568

10/21/2015

1320

1327

1313

1316

1483400

1274.119

0.000760456

10/20/2015

1315

1322

1312

1315

1394300

1273.151

0.003051106

10/19/2015

1293

1315.5

1293

1311

1572100

1269.278

0.011574074

10/16/2015

1300

1303

1291

1296

1759600

1254.756

-0.00077101

10/15/2015

1292

1300

1286

1297

1346400

1255.724

0.006987578

10/14/2015

1286

1291

1277

1288

1923800

1247.01

-0.001550388

10/13/2015

1281

1290

1276

1290

1209500

1248.947

0.0078125

10/12/2015

1284

1288

1276

1280

911000

1239.265

-0.001560062

10/9/2015

1290

1298

1274.28

1282

1891100

1241.201

-0.000779423

10/8/2015

1261

1294

1261

1283

2305400

1242.169

0.016640254

10/7/2015

1294

1301

1257

1262

1916200

1221.838

-0.023975251

10/6/2015

1309

1311

1292

1293

1700900

1251.851

-0.009954058

10/5/2015

1288

1306

1285

1306

2200200

1264.437

0.030781373

10/2/2015

1261

1277

1248

1267

2193000

1226.679

0.011980831

10/1/2015

1270

1280

1252

1252

1310000

1212.156

-0.005559968

9/30/2015

1257

1264

1248

1259

2522900

1218.933

0.020259319

9/29/2015

1239

1255

1230

1234

1722000

1194.729

-0.015948963

9/28/2015

1278

1286

1254

1254

1478900

1214.092

-0.0203125

9/25/2015

1265

1283

1258.31

1280

1978600

1239.265

0.021548284

9/24/2015

1248

1263

1241

1253

2235400

1213.124

0.004811548

9/23/2015

1220

1255

1212.62

1247

1878000

1207.315

0.022131148

9/22/2015

1237

1242

1219

1220

2612500

1181.174

-0.013742926

9/21/2015

1229

1245

1229

1237

1660200

1197.633

0.000000001

9/18/2015

1225

1250.36

1222

1237

3863600

1197.633

0.00732899

9/17/2015

1219

1233

1218

1228

1957800

1188.92

0.006557377

9/16/2015

1211

1223

1208

1220

1807500

1181.174

0.012448133

9/15/2015

1211

1213

1198

1205

1667600

1166.652

-0.004954583

9/14/2015

1225

1232

1208

1211

2430200

1172.461

-0.007377049

9/11/2015

1248

1248

1220

1220

1292900

1181.174

-0.01850362

9/10/2015

1241

1251

1232

1243

1293300

1203.442

-0.00400641

9/9/2015

1254

1264

1244

1248

1354800

1200.393

0.009708738

9/8/2015

1231

1243.54

1225

1236

1338200

1188.85

0.010629599

9/7/2015

1230

1234

1220

1223

705500

1176.346

0.001638002

9/4/2015

1235

1235

1217.64

1221

1965000

1174.423

-0.02085004

9/3/2015

1259

1263

1247

1247

2148600

1199.431

0.000000001

9/2/2015

1231

1260

1229

1247

1836900

1199.431

0.01879085

9/1/2015

1236

1243

1219

1224

3026100

1177.308

-0.022364217

8/31/2015

1252

1252

1252

1252

0

1204.24

0.00000001

8/28/2015

1262

1262

1241

1252

1687300

1204.24

-0.007137193

8/27/2015

1252

1265

1239

1261

2222200

1212.897

0.026872964

8/26/2015

1248

1263

1228

1228

2610400

1181.156

-0.025396825

8/25/2015

1235

1267

1225

1260

3246200

1211.935

0.035332786

8/24/2015

1244

1252

1195.74

1217

4354200

1170.575

-0.04921875

8/21/2015

1284

1305

1280

1280

2853100

1231.172

-0.014626636

8/20/2015

1308

1312

1297

1299

1899400

1249.447

-0.006880734

8/19/2015

1323

1326

1308

1308

1647600

1258.104

-0.013574661

8/18/2015

1320

1331

1318

1326

1536300

1275.417

0.003025719

8/17/2015

1325

1325

1311.5

1322

1229400

1271.57

0.003034901

8/14/2015

1317

1330

1313

1318

1757600

1267.722

0.001519757

8/13/2015

1320

1327

1310

1316

1878900

1265.799

0.006885998

8/12/2015

1313

1323.46

1300

1307

2226400

1257.142

-0.008345979

8/11/2015

1329

1338.25

1316

1318

2203900

1267.722

-0.012734082

8/10/2015

1334

1338

1322

1335

1543600

1284.074

0.005271084

8/7/2015

1328

1338

1322.72

1328

1255900

1277.341

-0.001503759

8/6/2015

1313

1332

1306

1330

2055200

1279.265

0.009870919

8/5/2015

1312

1317.1

1306

1317

1612700

1266.761

0.003810976

8/4/2015

1300

1313

1291

1312

1378200

1261.951

0.009230769

8/3/2015

1292

1309

1292

1300

1290700

1250.409

0.001540832

7/31/2015

1284

1305.55

1279.88

1298

2498000

1248.485

0.011691348

7/30/2015

1295

1302

1273

1283

1401200

1234.058

-0.007733952

7/29/2015

1296

1303

1282

1293

2938000

1243.676

0.003103181

7/28/2015

1287

1297

1280

1289

1730600

1239.829

0.005460218

7/27/2015

1292

1309

1281

1282

2281000

1233.096

-0.01156515

7/24/2015

1284

1312.36

1282

1297

2485100

1247.523

0.009338521

7/23/2015

1310

1310

1281

1285

2529400

1235.981

-0.013056836

7/22/2015

1301

1312.79

1296

1302

2379500

1252.333

-0.002298851

7/21/2015

1324

1325

1305

1305

3289300

1255.218

-0.011363636

7/20/2015

1315

1332

1311

1320

1236400

1269.646

-0.008264463

7/17/2015

1330

1334

1313

1331

1704600

1280.226

0.003014318

7/16/2015

1316

1329

1313

1327

1311200

1276.379

0.014525994

7/15/2015

1306

1314

1299

1308

1120400

1258.104

0.003837299

7/14/2015

1308

1309

1287

1303

1635400

1253.295

0.000000001

7/13/2015

1300

1308.27

1287

1303

1918000

1253.295

0.012432012

7/10/2015

1290

1291

1281

1287

1420200

1237.905

0.009411765

7/9/2015

1252

1275

1250

1275

1858500

1226.363

0.019184652

7/8/2015

1250

1260

1244

1251

1578500

1203.278

0.0008

7/7/2015

1260

1269

1241

1250

3072900

1202.316

0.016260163

7/6/2015

1244

1251

1229

1230

1654300

1183.079

-0.01521217

7/3/2015

1233

1253

1230

1249

2056900

1201.355

0.013798701

7/2/2015

1237

1243

1230.64

1232

1793600

1185.003

-0.001620746

7/1/2015

1218

1236

1216

1234

3232900

1186.927

0.024916944

6/30/2015

1218

1219

1204

1204

2009300

1158.071

-0.011494253

6/29/2015

1209

1232.59

1205.45

1218

1903500

1171.537

-0.017741935

6/26/2015

1244

1247

1236

1240

889900

1192.698

-0.003215434

6/25/2015

1245

1255

1238

1244

1904000

1196.545

-0.000803213

6/24/2015

1255

1257

1243

1245

1654400

1197.507

-0.010333863

6/23/2015

1259

1266

1246

1258

1440800

1210.011

0.001592357

6/22/2015

1248

1259

1244

1256

1986300

1208.087

0.019480519

6/19/2015

1228

1245

1227

1232

3637000

1185.003

0.000812348

6/18/2015

1229

1233

1213

1231

3327400

1184.041

-0.004045307

6/17/2015

1271

1277

1236

1236

2012700

1181.011

-0.025236593

6/16/2015

1268

1275

1256

1268

2123000

1211.588

-0.001574803

6/15/2015

1266

1280

1261

1270

2160900

1213.499

0.00000001

6/12/2015

1289

1297

1268

1270

2733100

1213.499

-0.020061728

6/11/2015

1263

1308

1261

1296

2343300

1238.342

0.021276596

6/10/2015

1252

1271

1245

1269

1914100

1212.543

0.013578275

6/9/2015

1245

1264

1242

1252

1885200

1196.299

0.004815409

6/8/2015

1253

1258

1243.25

1246

1156800

1190.566

-0.002401922

6/5/2015

1269

1271

1249

1249

1846700

1193.433

-0.018853103

6/4/2015

1271

1287

1255

1273

2302500

1216.365

0.000786164

6/3/2015

1294

1298

1271

1272

2715800

1215.41

-0.017001546

6/2/2015

1331

1331

1294

1294

2199200

1236.431

-0.021919879

6/1/2015

1312

1333

1308

1323

2241100

1264.141

0.007616146

5/29/2015

1328

1337

1310

1313

2614700

1254.586

-0.013523666

5/28/2015

1321

1333.4

1318

1331

1529000

1271.785

0.003014318

5/27/2015

1309

1335

1309

1327

1944200

1267.963

0.014525994

5/26/2015

1320

1329

1303

1308

2601400

1249.808

-0.009090909

5/25/2015

1320

1320

1320

1320

0

1261.274

0.000000001

5/22/2015

1323

1330

1317

1320

3178300

1261.274

-0.003021148

5/21/2015

1339

1339

1321

1324

2199400

1265.096

-0.010463378

5/20/2015

1362

1362

1332

1338

2951400

1278.473

-0.018341893

5/19/2015

1325

1363

1325

1363

3266600

1302.361

0.039664378

5/18/2015

1306

1321

1300

1311

2295700

1252.675

0.001527884

5/15/2015

1300

1317

1300

1309

3119700

1250.764

0.010030864

5/14/2015

1280

1300

1265

1296

1533800

1238.342

0.011709602

5/13/2015

1259

1284

1256.25

1281

1893400

1224.009

0.018282989

5/12/2015

1258

1262

1231

1258

2642400

1202.033

-0.001587302

5/11/2015

1263

1279

1259

1260

1804500

1203.944

-0.002375297

5/8/2015

1279

1284

1244

1263

4833000

1206.81

0.042079208

5/7/2015

1208

1217

1191

1212

3912300

1158.079

0.00000001

5/6/2015

1220

1220.5

1205

1212

2949500

1158.079

-0.007371007

5/5/2015

1236

1250.24

1221

1221

2482700

1166.679

-0.006509357

5/4/2015

1229

1229

1229

1229

0

1174.323

0.000000001

5/1/2015

1245

1245

1224

1229

1222200

1174.323

-0.01601281

4/30/2015

1251

1256

1232

1249

2568600

1193.433

-0.001598721

4/29/2015

1268

1280

1251

1251

2473300

1195.344

-0.008716323

4/28/2015

1276

1292

1250

1262

2018900

1205.855

-0.007081039

4/27/2015

1270

1281

1249

1271

1651400

1214.454

0.001576044

4/24/2015

1274

1278

1255

1269

1785900

1212.543

-0.004705882

4/23/2015

1282

1282

1265

1275

1344000

1218.276

-0.001566171

4/22/2015

1288

1292

1259

1277

1649300

1220.187

-0.00312256

4/21/2015

1285

1289

1276

1281

1242100

1224.009

-0.000780031

4/20/2015

1273

1282

1268

1282

1641800

1224.965

0.01183899

4/17/2015

1279

1291

1264

1267

2140000

1210.632

-0.008607199

4/16/2015

1296

1296

1268

1278

1689400

1221.143

-0.010069713

4/15/2015

1309

1310

1286

1291

1458500

1233.564

-0.009969325

4/14/2015

1288

1305

1288

1304

1820300

1245.986

0.009287926

4/13/2015

1301

1306

1288

1292

2164500

1234.52

-0.005388761

4/10/2015

1292

1300.02

1290

1299

2034000

1241.208

0.007757952

4/9/2015

1280

1293

1277.9

1289

1082700

1231.653

0.010188088

4/8/2015

1276

1278

1267

1276

1147500

1219.232

0.000000001

4/7/2015

1265

1282

1264

1276

1484600

1219.232

0.01350278

4/6/2015

1259

1259

1259

1259

0

1202.988

0.0000001

4/3/2015

1259

1259

1259

1259

0

1202.988

0.00000001

4/2/2015

1257

1260

1249

1259

1284500

1202.988

0.003187251

4/1/2015

1253

1263.25

1248

1255

2214800

1199.166

0.001596169

3/31/2015

1265

1273

1250.5

1253

3182100

1197.255

-0.008702532

3/30/2015

1280

1280

1257

1264

1695600

1207.766

-0.003154574

3/27/2015

1265

1272

1253

1268

1906000

1211.588

0.006349206

3/26/2015

1263

1270

1251

1260

3540800

1203.944

-0.010212097

3/25/2015

1288

1298

1270

1273

1344800

1216.365

-0.010108865

3/24/2015

1272

1291

1268

1286

1748200

1228.787

0.008627451

3/23/2015

1277

1281

1268

1275

1755100

1218.276

-0.000783699

3/20/2015

1273

1277

1264.24

1276

3515300

1219.232

0.003144654

3/19/2015

1267

1284

1265

1272

4328600

1215.41

0.00952381

3/18/2015

1231

1262

1231

1260

1651600

1203.944

0.02189781

3/17/2015

1229

1240

1225

1233

1888700

1178.145

0.00000001

3/16/2015

1222

1235.96

1220

1233

2045600

1178.145

0.010655738

3/13/2015

1201

1222

1201

1220

2664500

1165.723

0.01836394

3/12/2015

1206

1218

1198

1198

2672100

1144.702

-0.01073493

3/11/2015

1212

1220.32

1207

1211

1926900

1149.575

-0.003292181

3/10/2015

1238

1254

1213

1215

2588300

1153.372

-0.01937046

3/9/2015

1263

1265

1229

1239

2375400

1176.155

-0.02055336

3/6/2015

1294

1295

1261

1265

2873300

1200.836

-0.020139427

3/5/2015

1277

1293.36

1277

1291

1628800

1225.517

0.010963195

3/4/2015

1285

1285

1271

1277

2298900

1212.227

-0.00234375

3/3/2015

1285

1291

1278

1280

3089400

1215.075

0.001564945

3/2/2015

1263

1280

1258

1278

3032900

1213.177

0.017515924

2/27/2015

1246

1261

1238

1256

3208700

1192.292

0.010458568

2/26/2015

1228

1244

1224

1243

2049400

1179.952

0.009748172

2/25/2015

1241

1242

1225

1231

1971300

1168.561

-0.005654281

2/24/2015

1236

1250

1233

1238

2200500

1175.205

0.000808407

2/23/2015

1237

1241

1227

1237

2368900

1174.256

0.005691057

2/20/2015

1234

1234

1219

1230

2102500

1167.611

-0.003241491

2/19/2015

1230

1238.67

1223

1234

2204300

1171.408

0.008994276

2/18/2015

1242

1250

1217

1223

2705500

1160.966

-0.018459069

2/17/2015

1241

1248

1231

1246

1735800

1182.8

0.002413516

2/16/2015

1248

1254

1241

1243

1640300

1179.952

-0.0056

2/13/2015

1258

1263

1244

1250

3003100

1186.597

-0.002394254

2/12/2015

1262

1271

1248

1253

2783800

1189.445

-0.010268562

2/11/2015

1269

1274

1261

1266

1474900

1201.785

-0.002364066

2/10/2015

1272

1278

1262

1269

3007100

1204.633

-0.002358491

2/9/2015

1302

1303

1267

1272

1735800

1207.481

-0.023041475

2/6/2015

1300

1312

1295

1302

2514500

1235.959

-0.002298851

2/5/2015

1290

1305

1288

1305

2541600

1238.807

0.007722008

2/4/2015

1288

1295.27

1273

1295

2436100

1229.314

0.007782101

2/3/2015

1293

1300

1285

1285

2924200

1219.822

-0.006955178

2/2/2015

1283

1294.08

1269

1294

1619500

1228.365

0.015698587

1/30/2015

1297

1301

1270

1274

2793700

1209.379

-0.018489985

1/29/2015

1284

1300

1275

1298

1556600

1232.162

0.006982157

1/28/2015

1277

1289

1259

1289

2659000

1223.619

0.01496063

1/27/2015

1282

1292

1265

1270

1676900

1205.582

-0.01244168

1/26/2015

1283

1290

1277

1286

1839100

1220.771

0.001557632

1/23/2015

1279

1289

1277

1284

2040200

1218.872

0.007058824

1/22/2015

1262

1282

1256

1275

2232200

1210.329

0.009501188

1/21/2015

1253

1272

1250

1263

2339900

1198.937

0.007980846

1/20/2015

1245

1256

1240

1253

1962700

1189.445

0.011299435

1/19/2015

1232

1246

1225

1239

1450500

1176.155

0.004051864

1/16/2015

1219

1234

1209

1234

2898800

1171.408

0.006525285

1/15/2015

1207

1226

1196

1226

2597800

1163.814

 

 

         

Mean

-0.000108507

 

         

Mode

0.000000001

 

         

Median

0.000000001

 

         

Standard Deviation

0.012762451

 

         

Variance

0.00016288

 

             

 

 

 

 

 

 

Frequency Distribution

250

For better understanding, the following graphs on the Daily Return and the Closing Stock Price have been performed below:

From the above Closing Stock Price graph, it can be said that with the passage of the time within the time period 1st January 2015 to 31st December 2015, the closing stock price of the organization Land Securities Group Plc varies. Though from the graph, it can be interpreted that the closing stock price of the firm Land Securities Group Plc generally lies between the ranges £ 1100 to £ 1400 within the particular time period.

Daily Return

From the above Daily Return graph, it can be said that the daily return might be a positive value or it might be a negative value. Here, the daily return for the time period 1st January 2015 to 31st December 2015 have been represented in order to analyze the daily return of the company Land Securities Group Plc in detail. It can be said from the graph that the daily return of the company Land Securities Group Plc varies between the ranges – 0.05 to + 0.04 within the particular time period.

All the calculations and the workings of the descriptive statistics have been shown in the attached excel sheet of the case study A. For better understanding, it can be said that the formulae that have been used for calculating mean, median, mode, standard deviation, frequency distribution and variance are all suitable for calculating in the excel sheet (Flannery and Hankins 2013). Therefore, in the formula bar of the excel sheet, all the required formulae have been provided for each of the statistical calculations. The above graphs on the closing stock price and daily return of the company Land Securities Group Plc and the calculations indicate that the mode is 0.000000001, the mean is 0.000108507, standard deviation is 0.012762451, median is 0.000000001, frequency distribution is 250 and lastly variance is 0.00016288. From these values, it can be said that the financial position of the particular organization is constant and stable as mode, mean, median and standard deviation are positive and on the other hand, the value of the variance is comparatively lower (Graham 2013). This relatively lower value of the variance indicates that the firm Land Securities Group Plc had a stable value of stock throughout the year 2015 (Booth and Cleary 2013). Moreover, the positive value of the covariance implies that the variables of Land Securities Group Plc are positively related (Acharya et al. 2013). Thus, it can be advised that the investors can invest freely in this organization Land Securities Group Plc with the aim to earn high return.

 
Case Study B
PKB Limited:
The firm PKB Limited planned to expand its business by expanding its product range and a possible campaign of marketing. Thus, on the basis of the present financial position of the organization, the Net Present Value (NPV) of the new investment project, payback period (PBP) and the Internal Rate of Return (IRR) of the new project have been calculated in order to analyze the financial position of the firm in detail (Clayman et al. 2012). All the calculations are shown below:

Net Present Value:

 

Cash flow

Scrap Value

Final Cash Flow

year 0

-5000000

 

-5000000

year1

1360800

 

1360800

year 2

1443240

 

1443240

year 3

1410980

 

1410980

year 4

1377753

750000

2127753

 

 

NPV

$55,115.52

 

Workings

 

Year 1

Year 2

Year 3

Year 4

Sales

8500000

9520000

9520000

9520000

Less: Variable Cost

5100000

5712000

5712000

5712000

Contribution

3400000

3808000

3808000

3808000

Less: Fixed Cost

1200000

1493500

1538305

1584454

EBIT

2200000

2314500

2269695

2223546

Less: Interest

310000

310000

310000

310000

EBT

1890000

2004500

1959695

1913546

Less: Tax (@ 28%)

529200

561260

548714.6

535792.9

PAT (Profit After Tax)

1360800

1443240

1410980

1377753

Workings

 

 

Increased Sales

 

 

 

sales increased by 12%

9520000

   

 

 

12%

     

 

 

 

     

 

 

variable cost of year 1

5100000

   

 

 

60% of sales value

     

 

 

 

     

 

 

variable cost of other years

5712000

   

 

 

60% of sales value

     

 

 

 

     

 

 

increased fixed cost

250000

 

1450000

43500

 

 

   

1493500

 

 

Risk free rate

4.70%

   

 

 

rate of interest

6.20%

   

 

 

1.50%

     

 

 

 

     

 

 

tax rate

28%

   

 

 

 

     

 

 

initial investment

5000000

 

 

 

 

                   

 

 Internal Rate of Return:

15%

 

 

 

5000000

 

 

 

Rate

 

IRR

10%

9%

 

 

 

Payback Period:

year

Cash Flow

Cumulative Cash Flow

0

-5000000

-5000000

1

1360800

-3639200

2

1443240

-2195960

3

1410980

-784980

4

2127753

1342773

 

 

 

Payback Period

2.631075599

years

The report analysis for the case study B has been prepared based on various calculations i.e. NPV, IRR and payback period of the investment that has been made for the new project of the company PKB Limited. It can be said from the above calculation that the new project of investment should be accepted (Ziegler 2012). The reason behind this is that the Net Present Value (NPV) of the specified project is positive i.e. $55,115.52, the Internal Rate of Return (IRR) is also relatively lesser that is only 10 % and lastly the payback period (PBP) of the new mentioned project has also been calculated that is equivalent 2.63 years. This implies that investment in the new project and the marketing campaign will result into higher return (Gitman and Zutter 2012). In other words, it can also be said that the marketing campaign would affect the viability of the new project positively. The reason behind this is that, the marketing campaign would help to advertise about the products of the company PKB limited and this will also help to communicate among the company and its customers about the products and services provided by the firm. Thus, it can be said that with the successful marketing campaign, the sales revenue of the firm can be increased as advertisement or marketing campaign is a process of communicating between the company and its customers.

On the basis of the case study B and NPV calculation, it can be said that the company should invest in the new project as the value of the NPV calculation is positive. As per the thumb rule, any project having positive NPV should be accepted and any project having negative NPV should be rejected. For this case study B, the NPV is positive, thus the new project should be accepted and the investors should invest in the new project for the expansion of the product range.

In this case study B, the present financial condition of the firm has already been provided and it can be better understood from the balance sheet of the firm that has been provided. Therefore, for analyzing the present financial situation of the firm the researcher might not calculate the NPV, IRR and payback. However, in the case study B, various assumptions have been provided and the initial investment amount for the new project, its life for 4 years and the various cash inflows amount for each of the 4 years have also been provided. Based on the data provided and the assumptions like – increase in inflation rate, increase in sales amount from 2nd year onwards and high tax rate, all the calculations of NPV, IRR and payback for the new project have been done. It has been found that all calculated values are positive and thus by comparing the present financial situation of the firm and the proposed investment plan, it can be said that the investor should opt for the proposed new investment plan and therefore, they should invest in the new proposed project.

Therefore, it can be found from the case study that there are several assumptions but only a few can be considered as the most critical one due to the feasibility of the project. These include – the increase in the variable cost, the increase in the rate of inflation and higher amount of taxation (Esty 2014). Nevertheless, all these critical assumptions can be ignored as from the case study and the above calculations it has been found that the total amount of cash inflow is more than the total amount of cash outflow for the new project of investment (Brealey et al. 2012). This increase in the cash inflow than the cash outflow will continue for spontaneously four years (Roberts and Whited 2012). Thus, it can be suggested that the organization PKB Limited should make this new investment for the expansion of the product range of the organization and possible campaign of marketing.

 
References

Acharya, V.V., Gottschalg, O.F., Hahn, M. and Kehoe, C., 2013. Corporate governance and value creation: Evidence from private equity. Review of Financial Studies26(2), pp.368-402.

Berk, J. and DeMarzo, P. 2011. Corporate finance. Boston, MA: Prentice Hall.

Booth, L. and Cleary, S., 2013. Introduction to corporate finance. Wiley Global Education.

Brealey, R.A., Myers, S.C., Allen, F. and Mohanty, P., 2012. Principles of corporate finance. Tata McGraw-Hill Education.

Clayman, M.R., Fridson, M.S. and Troughton, G.H., 2012. Corporate finance: A practical approach (Vol. 42). John Wiley & Sons.

Drury, C. 2012. Management and cost accounting. Andover: Cengage Learning.

Esty, B., 2014. An Overview of Project Finance and Infrastructure Finance-2014 Update. HBS Case, (214083).

Flannery, M.J. and Hankins, K.W., 2013. Estimating dynamic panel models in corporate finance. Journal of Corporate Finance19, pp.1-19.

Gitman, L.J. and Zutter, C.J., 2012. Principles of managerial finance. Prentice Hall.

Graham, J.R., Harvey, C.R. and Puri, M., 2013. Managerial attitudes and corporate actions. Journal of Financial Economics109(1), pp.103-121.

Roberts, M.R. and Whited, T.M., 2012. Endogeneity in empirical corporate finance.

Shiller, R. 2012. Finance and the good society. Princeton, N.J.: Princeton University Press.

Smith, C.W. and Wakeman, L., 2011. Determinants of corporate leasing policy. The Journal of Finance40(3), pp.895-908.

Thompson, T. 2012. Benchmarking the finance function 2012. Morrisotwn, NJ: Financial Executives Research Foundation.

Ziegler, A.C., 2012. A Game Theory Analysis of Options: Corporate Finance and Financial Intermediation in Continuous Time. Springer Science & Business Media.

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