Question $5(20$ marks$)$

Daisy Ltd$.$ is a computer retail company listed on the NYSE. For the year ended $31$ December $2019,$ its reported net income is $$8$M$.$ These earnings were made public on $31$ March $2020.$ Financial analysts predicted the company's net income to be $$7$M with this prediction being up to when the $2019$ earnings were made public. No other news was released to the public on $31$ March $2020,$ and there were no significant economy$-$wide events affecting share prices up to that date.

Required

$($a$)$ Would you expect a change in the share price of Daisy Ltd$.$ on $31$ March $2020?$ If so$,$ why? $(5$ marks$)$

$($b$)$ Consider the two scenarios below:

$($i$)$ The deviation of forecasted earnings from actual earnings of $$1$M is completely accounted for due to the signing of a significant contract signed by the company that will continue into the future supplying computers to government schools in their district.

$($ii$)$ The deviation of forecasted earnings from actual earnings of $$1$M is completely accounted for due to a one$-$off gain from the sale of a written$-$down asset.

In which of these two scenarios would you expect the price change of Daisy Ltd$.\text{'}$s share price to be greater? Explain why. $(7$ marks$)$

$($c$)$ For each of the following, $($i$)$ Beta, and $($ii$)$ Capital structure $($leverage$)$: Detail whether you would expect these to be associated with a higher or lower ERC, and give the reason why. $(8$ marks$)$