Financial Management and Annual Return Order Instructions:I just want to aswer the questions as they are.
Financial Management and Annual Return Sample Answer
Financial Management 534
1.
| Goodman Industries | Landry Incorporated | |||||
| Year | Stock Prices | Dividend | Annual returns for Goodman | Stock Prices | Dividend | Annual returns for Landry |
| 2013 | 25.88 | 1.73 | 0.248 | 73.13 | 4.5 | -0.010 |
| 2012 | 22.13 | 1.59 | -0.042 | 78.45 | 4.35 | 0.132 |
| 2011 | 24.75 | 1.5 | 0.627 | 73.13 | 4.13 | -0.100 |
| 2010 | 16.13 | 1.43 | 0.029 | 85.88 | 3.75 | -0.004 |
| 2009 | 17.06 | 1.35 | 0.609 | 90 | 3.38 | 0.117 |
| 2008 | 11.44 | 1.28 | 83.63 | 3 | ||
To calculate the annual returns for Goodman Industries the values of 2013 are deducted from the values of 2012 then the value obtained is added to the dividend of 2013 and the figure obtained divided by the 2012 value.
The returns for 2013 are: 25.88 – 22.13 = 3.75 + 1.73 = 5.48/22.13 = 0.2476
The returns for 2012 are -0.042, while for 2011, 2019 and 2009 were 0.627, 0.029 and 0.609 respectively.
| Market Index | ||
| Year | Includes dividend | Market Returns |
| 2013 | 17495.97 | 0.328 |
| 2012 | 13178.55 | 0.012 |
| 2011 | 13019.97 | 0.349 |
| 2010 | 9651.05 | 0.148 |
| 2009 | 8403.42 | 0.190 |
| 2008 | 7058.96 | |
| STDEV | 0.138 | |
The returns for the market index are calculated by deducting the values of 2013 from the values of 2012 then the value obtained is divided by the 2012 value.
1b).
| Year | Av. Annual returns (3 stock) |
| 2013 | 0.188 |
| 2012 | 0.034 |
| 2011 | 0.292 |
| 2010 | 0.058 |
| 2009 | 0.305 |
| 2008 |
The annual returns for Goodman industries and Landry are added together with the market returns and are then divided by three (Garrison, Noreen & Brewer, 2009).
2)
| Goodman Industries | Landry Incorporated | |||||
| Year | Stock Prices | Dividend | Annual returns for Goodman | Stock Prices | Dividend | Annual returns for Landry |
| 2013 | 25.88 | 1.73 | 0.248 | 73.13 | 4.5 | -0.010 |
| 2012 | 22.13 | 1.59 | -0.042 | 78.45 | 4.35 | 0.132 |
| 2011 | 24.75 | 1.5 | 0.627 | 73.13 | 4.13 | -0.100 |
| 2010 | 16.13 | 1.43 | 0.029 | 85.88 | 3.75 | -0.004 |
| 2009 | 17.06 | 1.35 | 0.609 | 90 | 3.38 | 0.117 |
| 2008 | 11.44 | 1.28 | 83.63 | 3 | ||
| STDEV | 0.314 | 0.097 | ||||
The STDEV formula is obtained from the excel spreadsheet.
| Market Index | ||
| Year | Includes dividend | Market Returns |
| 2013 | 17495.97 | 0.328 |
| 2012 | 13178.55 | 0.012 |
| 2011 | 13019.97 | 0.349 |
| 2010 | 9651.05 | 0.148 |
| 2009 | 8403.42 | 0.190 |
| 2008 | 7058.96 | |
| STDEV | 0.138 | |
The STDEV formula is obtained from the excel spreadsheet.
3).
| Year 1 | Year 2 | Year 3 | |
| D0 | D1 | D2 | D3 |
| 150 | 157.5 | 165.38 | 173.64 |
The value of D1 is obtained by adding 5% on D0 while the value of D2 is obtained after adding 5% of D1. D3 is also obtained the same way, 5% is added to D2 compounding (Ross, Westerfield & Jaffe, 2013).
4).
| Goodman Industries | |||||
| Year | Stock Prices | Dividend | Annual returns for Goodman | Present value | |
| 1 | 2013 | 25.88 | 1.73 | 0.248 | 0.219 |
| 2 | 2012 | 22.13 | 1.59 | -0.042 | -0.033 |
| 3 | 2011 | 24.75 | 1.5 | 0.627 | 0.435 |
| 4 | 2010 | 16.13 | 1.43 | 0.029 | 0.018 |
| 5 | 2009 | 17.06 | 1.35 | 0.609 | 0.331 |
The present value of the returns for Goodman industries for the first three years discounted at the rate for 13% are 0.219 – 0.033 + 0.435 = 0.621
The least he can sell the stock is 25.88 – 0.621 = 25.259
References
Garrison, R., Noreen, W., & Brewer, P. (2009) Managerial Accounting, New York, NY: McGraw-Hill Irwin. 65 -70
Ross, S. A., Westerfield, R. W., & Jaffe, J. (2013) Corporate finance (10th ed.) New York, NY: McGraw-Hill Irwin.
