Question

In: Finance

2019 2018 2017 2016 Net Investment Income 0.78 1.10 0.80 .34 Dividends Paid on Net Investment...

	2019	2018	2017	2016

Net Investment Income	0.78	1.10	0.80	.34
Dividends Paid on Net Investment Income	(0.75)	(0.90)	(0.50)	(0.25)
Net Realized and Unrealized Gains (Losses) on Security Transactions	(4.43)	1.25	3.25	(1.50)
Cash distributions from realized Gains	-	(1.00)	(1.60)	-

Increase (Decrease) in NAV	(4.40)	0.45	1.95	(1.41)
NAV Beginning of the year	15.99	15.54	13.59	15.00
NAV End of Year	11.59	15.99	15.54	13.59

This a no-load mutual fund.

a: Using the cash flow worksheet on your financial calculator, calculate the 4-year average annual compound rate of return. The purchase price at the beginning of 2016 is $15.00 per share and the selling price at the end of 2019 is $11.59 per share.

b: Calculate the total profit per share for the 4-year period.

c. Using the cash flow worksheet on your financial calculator, calculate the 2-year average return assuming the investment was purchased at the beginning of 2017 for $13.59 and sold at the end of 2018 for $15.99.

d. Calculate the total profit per share for the 2-year period in c above.

e. Discuss the answers you calculated in parts a/b to the answers you calculated in parts c/d.

Expert Solution

a]

CF₀ = -purchase price = -$15.00

CF₁ = Cash distribution in 2016 = $0

CF₂ = Cash distribution in 2017 = $1.60

CF₃ = Cash distribution in 2018 = $1.00

CF₄ = selling price + Cash distribution in 2019 = $11.59 + $0 = $11.59

4-year average annual compound rate of return is calculated by the IRR of the above cash flows.

4-year average annual compound rate of return = -1.49%

b]

total profit per share = selling price - purchase price + total cash distributions

total profit per share = $11.59 - $15.00 + ($1.60 + $1.00)

total profit per share = -$0.81

c]

CF₀ = -purchase price = -$13.59

CF₁ = Cash distribution in 2017 = $1.60

CF₂ = selling price + Cash distribution in 2018 = $15.99 + $1.00 = $16.99

2-year average annual compound rate of return is calculated by the IRR of the above cash flows.

2-year average annual compound rate of return = 17.85%

d]

total profit per share = selling price - purchase price + total cash distributions

total profit per share = $15.99 - $13.59 + ($1.60 + $1.00)

total profit per share = $5.00

e]

The total profit per share and average annual compound rate of return are higher in the 2-year period (parts c/d) than the 4-year period (parts a/b).

This is due to 2 reasons :

There was a decrease in NAV in 2016 and 2019 whereas there was an increase in NAV in 2017 and 2018.
There were cash distributions in 2017 and 2018 whereas the cash distributions were zero in 2016 and 2019

jeff jeffy answered 2 years ago

Assume that in 2017, The Shallonz Corporation reported net income of $143 million, and paid dividends...

Assume that in 2017, The Shallonz Corporation reported net income of $143 million, and paid dividends totaling $36.5 million throughout the year. Their net income has been growing at about 5% per year for some time, but it is expected to grow by 20% in 2018. Growth is expected to return to the normal 5% the following year and thereafter. It has also been estimated that the company will need about $52 million in funds for capital expenditures in 2018....

Small Company reported 2017 net income of $300,000 and paid dividends of $90,000 during the year....

Small Company reported 2017 net income of $300,000 and paid dividends of $90,000 during the year. Parker Inc. acquired 20% of Small's outstanding voting stock on January 1, 2017 for $630,000. At December 31, 2017, Parker determined the fair value of the shares in small to be $615,000. Parker reported operating income of $540,000. instructions: Compute Parker's net income for 2017 assuming it uses the following methods to account for its investment. a. equity method in accounting for its investment...

In 2017, the Keenan Company paid dividends totaling $3.6 million on net income of $10.8 million....

In 2017, the Keenan Company paid dividends totaling $3.6 million on net income of $10.8 million. Note that 2017 was a normal year and that for the past 10 years, earnings have grown at a constant rate of 10%. However, in 2018, earnings are expected to jump to $14.4 million, and the firm expects to have profitable investment opportunities of $8.4 million. It is predicted that Keenan will not be able to maintain the 2018 level of earnings growth—the high...

In 2017, Keenan Company paid dividends totaling $3,600,000 on net income of $10.8 million. Note that...

In 2017, Keenan Company paid dividends totaling $3,600,000 on net income of $10.8 million. Note that 2017 was a normal year and that for the past 10 years, earnings have grown at a constant rate of 10%. However, in 2018, earnings are expected to jump to $14.4 million and the firm expects to have profitable investment opportunities of $8.4 million. It is predicted that Keenan will not be able to maintain the 2018 level of earnings growth because the high...

Net income figures for Flounder Ltd. are as follows: 2016 - $77,800 2017 - $56,500 2018...

Net income figures for Flounder Ltd. are as follows: 2016 - $77,800 2017 - $56,500 2018 - $86,400 2019 - $90,600 2020 - $71,600 Future income is expected to continue at the average amount of the past five years. The company’s identifiable net assets are appraised at $468,200 on December 31, 2020. The business is to be acquired by Novak Corp. in early 2021. The normal rate of return on net assets for the industry is 9%. Click here to...

Statement of Profit or Loss for years 2016 to 2019 Year 2019 Year 2018 Year 2017...

Statement of Profit or Loss for years 2016 to 2019 Year 2019 Year 2018 Year 2017 Year 2016 $ $ $ $ Sales revenue 1,095,910 1,060,900 1,030,000 1,000,000 Less: Cost of goods sold (895,358) (866,755) (842,540) (820,000) Gross profit 200,552 194,145 187,460 180,000 Other operating expenses (162,877) (161,827) (160,900) (160,000) Income before tax 37,675 32,318 26,560 20,000 Less: Income tax expense (3,768) (3,232) (2,656) (2,000) Net income 33,907 29,086 23,904 18,000 Required: Compute the index-number trend percentages for the accounts...

Income Statement 2016 2017 2018 Net sales 1,304,000 1,507,000 1,791,000 Cost of sales 781,000 952,000 1,210,000...

Income Statement 2016 2017 2018 Net sales 1,304,000 1,507,000 1,791,000 Cost of sales 781,000 952,000 1,210,000 Gross profit 523,000 555,000 581,000 Marketing 135,400 149,670 220,245 General administration 151,000 151,200 219,560 Depreciation 35,695 49,805 60,345 EBIT 200,905 204,325 80,850 Interest 45,000 57,000 70,000 EBT 155,905 147,325 10,850 Income tax 48,331 45,671 3,364 Net income 107,574 101,654 7,487 Balance Sheet 2016 2017 2018 Cash 55,000 43,500 11,000 Accounts receivable 220,000 261,000 376,337 Inventories 388,124 437,139 545,000 Prepaid insurance 25,000 28,000 28,500 Total...

KORBIN COMPANY Comparative Income Statements For Years Ended December 31, 2018, 2017, and 2016 2018 2017...

KORBIN COMPANY Comparative Income Statements For Years Ended December 31, 2018, 2017, and 2016 2018 2017 2016 Sales $ 382,784 $ 293,244 $ 203,500 Cost of goods sold 230,436 186,210 130,240 Gross profit 152,348 107,034 73,260 Selling expenses 54,355 40,468 26,862 Administrative expenses 34,451 25,805 16,891 Total expenses 88,806 66,273 43,753 Income before taxes 63,542 40,761 29,507 Income tax expense 11,819 8,356 5,990 Net income $ 51,723 $ 32,405 $ 23,517 Complete the below table to calculate income statement data...

BCS was a C Corporation in 2016 and an S Corporation in 2017. Net income for...

BCS was a C Corporation in 2016 and an S Corporation in 2017. Net income for 2016 was $80,000; net income for 2017 was $500,000. For 2016, the three shareholders of BCS were each allocated ordinary business income of zero, as well as separately stated items of zero. Why?

KORBIN COMPANY Comparative Income Statements For Years Ended December 31, 2019, 2018, and 2017 2019 2018...

KORBIN COMPANY Comparative Income Statements For Years Ended December 31, 2019, 2018, and 2017 2019 2018 2017 Sales $ 446,549 $ 342,093 $ 237,400 Cost of goods sold 268,822 213,808 151,936 Gross profit 177,727 128,285 85,464 Selling expenses 63,410 47,209 31,337 Administrative expenses 40,189 30,104 19,704 Total expenses 103,599 77,313 51,041 Income before taxes 74,128 50,972 34,423 Income tax expense 13,788 10,449 6,988 Net income $ 60,340 $ 40,523 $ 27,435 KORBIN COMPANY Comparative Balance Sheets December 31, 2019, 2018,...