4. SmartTech (ST) is a high-growth, software company that develops software and communications devices for electricity smart-grids for both residential and commercial use. ST outsources production of the physical smart boxes to Asian suppliers. ST has operated at a loss and isnt expected to generate income and positive cash flows for another twelve months.

GiantMart is a nationwide retailer of consumer non-durables. GiantMart, which saw rapid growth over the last 15 years, expects future growth to approximately mirror that of the economy. GiantMart prides itself in selling quality products at the lowest possible prices. Recently GiantMart stores have begun adding grocery items to their product mix in a new trend to attract customers.

1. If you were to prepare pro-formas for these two companies, which would likely have the highest relative EFN and WHY?

2. Carefully explain how these two companies gross profit margins are likely to differ and WHY.

3. Carefully explain how these two companies capital structures are likely to differ and WHY. (Give at least three reasons for likely differences)