Part 1…

FIN 534 – Homework Set #3

FIN 534 Homework Set #3 1158 (8-14-2015) Page 1 of 1

Directions: Answer the following questions on a separate document. Explain how you reached the answer 

or show your work if a mathematical calculation is needed, or both. Submit your assignment using the 

assignment link in the course shell. This homework assignment is worth 100 points.

Use the following information for questions 1 through 4:

The Goodman Industries’ and Landry Incorporated’s stock prices and dividends, along with the Market 

Index, are shown below. Stock prices are reported for December 31 of each year, and dividends reflect 

those paid during the year. The market data are adjusted to include dividends.

Goodman Industries Landry Incorporated Market Index

Year Stock Price Dividend Stock Price Dividend Includes Dividends

2013 $25.88 $1.73 $73.13 $4.50 17495.97

2012 22.13 1.59 78.45 4.35 13178.55

2011 24.75 1.50 73.13 4.13 13019.97

2010 16.13 1.43 85.88 3.75 9651.05

2009 17.06 1.35 90.00 3.38 8403.42

2008 11.44 1.28 83.63 3.00 7058.96

1. Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, and 

then calculate average annual returns for the two stocks and the index. (Hint: Remember, returns 

are calculated by subtracting the beginning price from the ending price to get the capital gain or 

loss, adding the dividend to the capital gain or loss, and then dividing the result by the beginning 

price. Assume that dividends are already included in the index. Also, you cannot calculate the 

rate of return for 2008 because you do not have 2007 data.)

2. Calculate the standard deviations of the returns for Goodman, Landry, and the Market Index. 

(Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the 

STDEV function in Excel.)

3. What dividends do you expect for Goodman Industries stock over the next 3 years if you expect 

the dividend to grow at the rate of 5% per year for the next 3 years? In other words, calculate D1, 

D2, and D3. Note that D0 = $1.50.

4. Assume that Goodman Industries’ stock has a required return of 13%. You will use this required 

return rate to discount the dividends calculated earlier. If you plan to buy the stock, hold it for 3 

years, and then sell it for $27.05, what is the most you should pay for it?“

Part 2…

Capital Budgeting and Risk Analysis” Please respond to the following:

• * From the e-Activity, analyze the reasons why the short-term project that you have chosen might be ranked higher under the NPV criterion if the cost of capital is high, while the long-term project might be deemed better if the cost of capital is low. Determine whether or not changes in the cost of capital could ever cause a change in the internal rate of return (IRR) ranking of two (2).
• * From the scenario, take a position for or against TFC’s decision to expand to the West Coast. Provide a rationale for your response in which you cite at least two (2) capital budgeting techniques (e.g., NPV, IRR, Payback Period, etc.) that you used to arrive at your decision.