Analysis of Galliford Try plc: Stock Price, Macro-Economic Variables, and Capital Budgeting

This report analyzes the share price movement of Galliford Try plc, the relationship between the stock price and macro-economic variables, and performs capital budgeting analysis. It provides insights into the stock's volatility, correlation with unemployment and house prices, and recommends a project and funding option.

Management Finance and
Science
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Student Number:
Module Code: MAN7MFI
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Contents
1. Executive Summary..............................................................................................4
2. Introduction............................................................................................................6
3. Galliford Try plc Analysis.......................................................................................7
3.1 Galliford Try plc stock price analysis..................................................................7
3.1.1 Descriptive statistics of Galliford Try plc’s return based on 1-year historical
prices.....................................................................................................................7
3.1.2 Descriptive statistics of Bovis Homes plc’s return based on 1-year
historical prices......................................................................................................8
3.1.3 Standard deviation as a measure of investor risk........................................8
3.1.4 The relationship between the close share prices of Galliford Try plc and
two macro-economic data sets...........................................................................10
3.1.5 The correlation between the monthly unemployment data and the relevant
close share price of Galliford Try plc and the monthly HPI data and the close
share price for year 2018....................................................................................11
3.1.6 Statistical significance and practical importance of the relationship
between the Galliford Try plc and two macro-economic variables (monthly HPI
and Unemployment data)....................................................................................12
3.2 Analysis of a capital budgeting decision...........................................................14
3.2.1 Selecting an investment project using capital budgeting methods and
analysing the risks of the project.........................................................................14
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3.2.2 Choice of funding for the project................................................................17
4. Conclusion and Recommendation......................................................................19
5. List of References...............................................................................................21
Appendix 1..................................................................................................................24
Appendix 2..................................................................................................................44
Appendix 3..................................................................................................................65
Appendix 4..................................................................................................................65
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1. Executive Summary
This report analyses the share price movement of Galliford Try plc to interpret the
information provided by various descriptive statistics and to identify the relationship
between the stock close price and two macro-economic variables: Unemployment
data and House prices of UK. This report also performs capital budgeting analysis to
choose among four potential projects.
The report calculates the daily return of Galliford Try plc and Bovis Homes plc for
2018. The standard deviation of the daily returns is 2.61% for Galliford Try Plc and
1.74% for Bovis Homes plc. This tells that the volatility of Galliford Try plc is higher.
The report uses the scatter plot to show the correlation between the close share
price of Galliford Try plc and unemployment and house prices monthly data. The
correlation coefficient between close share price of Galliford Try plc and monthly
Unemployment numbers is 0.368 and correlation between close share price of
Galliford Try plc and monthly HPI data is -0.0924. This shows there is low positive
relationship of the stock price with the unemployment data but it has no relationship
with the house prices numbers because of approximately zero correlation coefficient.
The report further found that these relationships do not have any statistical
significance because of high p-values.
The report performs capital budgeting analysis of the potential projects and found
that different investment appraisal methods recommend different projects. The
document recommends project S with the highest NPV of 51.53 as it will maximise
the overall wealth of the shareholders. The report evaluates different funding options
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like debt and equity. It recommends the use of debt funding by Galliford Try plc to
fund this project.
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2. Introduction
This report analyses the share price movement of Galliford Try plc to interpret the
information provided by various descriptive statistics and to identify the relationship
between the stock close price and two macro-economic variables. This report also
performs capital budgeting analysis to choose among four potential projects.
Galliford Try plc is a well-established construction company based in UK. The
company is among the top 250 companies listed on the London Stock Exchange.
The main business operations of the company include house-building, construction
and regeneration. Bovis Homes plc is another company in the same industry that is a
competitor of Galliford Try plc.
The report calculates the daily return of Galliford Try plc and Bovis Homes plc over
2018. It then calculates the descriptive statistics like mean, median, range and
standard deviation. It then analyse the standard deviation of both the stocks to
compare risk to the investors. The report also plots the correlation between Galliford
Try plc and two macro-economic variables and it calculates the correlation coefficient
to study the strength of their relationships.
The report uses different capital budgeting methods like NPV, AAR, IIR and payback
period to choose from four potential projects. It also analyses debt and equity
funding options to recommend the one that will suit Galliford Try plc according to its
capital structure.
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3. Galliford Try plc Analysis
3.1 Galliford Try plc stock price analysis
3.1.1 Descriptive statistics of Galliford Try plc’s return based on 1-year
historical prices.
Appendix 1 shows the stock price and return data of Galliford Try plc for year 2018.
1/3/2018
1/26/2018
2/18/2018
3/13/2018
4/5/2018
4/28/2018
5/21/2018
6/13/2018
7/6/2018
7/29/2018
8/21/2018
9/13/2018
10/6/2018
10/29/2018
11/21/2018
12/14/2018
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
Galliford Try plc returns
Galliford Try plc returns
Time-line
Daily Returns
Figure 1: Daily returns for the year 2018. Price data for the return calculations is taken from Yahoo
Finance (n.d.).
Descriptive Statistics
Mean -0.21%
Median -0.25%
Mode -
Standard Deviation 2.61%
Sample Variance 0.000682106
Range 0.305215154
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Table 1: Descriptive Statistics based on daily return data
3.1.2 Descriptive statistics of Bovis Homes plc’s return based on 1-year
historical prices.
Appendix 2 shows the stock price and return data of Bovis Homes plc’c for year
2018.
1/3/2018
1/25/2018
2/16/2018
3/10/2018
4/1/2018
4/23/2018
5/15/2018
6/6/2018
6/28/2018
7/20/2018
8/11/2018
9/2/2018
9/24/2018
10/16/2018
11/7/2018
11/29/2018
12/21/2018
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
Bovis Homes plc returns
Bovis Homes plc returns
Time-line
Daily Returns
Figure 2: Daily returns for the year 2018. Price data for the return calculations is taken from Yahoo
Finance (n.d.).
Descriptive Statistics
Mean -0.11%
Median -0.05%
Mode -
Standard Deviation 1.74%
Sample Variance 0.000301495
Range 0.124747767
Table 2: Descriptive Statistics based on daily return data
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3.1.3 Standard deviation as a measure of investor risk.
The standard deviation of a stock’s return is good measure of investor risk as it tells
about the volatility of return of the stock around its mean. According to Ahmad et al.
(2016), if the standard deviation is high then the stock’s return is more volatile or
more spread-out, that increases the probability of both the positive and negative
returns. So, the risk of investor earning negative return increases.
The above descriptive statistics data of two stocks tell that the average returns
earned by Galliford Try plc and Bovis Homes plc stock was -0.21% and -0.11%
respectively in 2018. These values are affected by the extreme values but median
gives the middle value of the data set and is not affected by extreme values. The
median return of Galliford Try plc and Bovis Homes plc stock was -0.25% and -
0.05% respectively in 2018.
The range for the Galliford Try plc and Bovis Homes plc is 0.305 and 0.124 whereas
the standard deviation is 2.61% and 1.74% respectively. Both the range and
standard deviation are measures of dispersion but range only considers the extreme
values whereas standard deviation considers all the values. Variance also tells how
spread out the returns is but due to the square units it is difficult to interpret. The
higher standard deviation of 2.61% for Galliford Try plc tells that volatility of this stock
is more than Bovis Homes plc. If we assume normal distribution then the 95%
confidence interval for Galliford Try plc is -0.21%+/–(1.96)(2.61%) or -5.33% to
4.91% and Bovis Homes plc is -0.11%+/-(1.96)(1.74%) or -3.52% to 3.30%. So, the
effect of higher standard deviation is that at 95% confidence level Galliford Try plc
can result in higher negative returns as compared to Bovis Homes plc. The return of
the stock therefore should not be seen on the standalone basis but together with its
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standard deviation. Sharpe ratio (Stock return – risk free rate)/ standard deviation of
stock return, is one such measure. Using risk free rate of 1.47% (yield on 30 year
government bond), sharpe ratio for Galliford Try plc is (-0.21%-1.47)/2.61% = -0.64
and Bovis Homes plc is (-0.11%-1.47)/1.74% = -0.90. The downside of using
standard deviation as an investors risk measure is first that it assumes that the
returns are normally distributed and second it is affected by the outliers. Also,
standard deviation tells about the volatility on positive as well as negative side but
most investors are just concerned about the downside risk.
3.1.4 The relationship between the close share prices of Galliford Try plc and
two macro-economic data sets.
The macro-economic fundamentals can have effect on the stock price of the
company. The relationship between these variables and stock can be analysed
through correlation or scatter plot (Anderson and Semmelroth, n.d.).
The following plot shows the correlation between the monthly close share prices of
Galliford Try plc and monthly unemployment and UK house prices. The relevant data
is shown in the appendix 3.
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650 750 850 950 1050 1150
1300000
1320000
1340000
1360000
1380000
1400000
1420000
1440000
1460000
1480000
115
116
117
118
119
120
121
122
Unemployment Numbers
Housing Price Numbers
Galliford Try plc close price
Unemployment Numbers
Housing Price Numbers
Figure 3: Correlation between Galliford Try plc close prices and two macro variables. Monthly data of
unemployment numbers is taken from Office for National Statistics (2019) and monthly UK HPI data is
taken from UK Government statistical data set (2019).
3.1.5 The correlation between the monthly unemployment data and the
relevant close share price of Galliford Try plc and the monthly HPI data and the
close share price for year 2018.
Correlation between Close share price
of Galliford Try plc and monthly
Unemployment numbers.
0.368049527
Correlation between Close share price
of Galliford Try plc and monthly HPI
data.
-0.092419372
The close share price of Galliford Try plc is positively correlated to the monthly
unemployment numbers of 2018. This means the share price moves in mostly a
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same direction as Unemployment numbers but the relationship is not that strong
given by the correlation coefficient of 0.368. The correlation coefficient of close share
price of Galliford Try plc and monthly HPI data given by -0.092 is almost zero or
slightly negatively, that means the movement of stock price is uncorrelated or very
slightly in opposite direction to the movement of housing price index. Overall there is
no strong relationship between the stock price and the two macro-data discussed
above.
3.1.6 Statistical significance and practical importance of the relationship
between the Galliford Try plc and two macro-economic variables (monthly HPI
and Unemployment data).
Summary output of regression between Galliford Stock Price and Unemployment
Numbers:
Coefficients
Standard
Error
t Stat P-value
Intercept -1001.09 1531.883 -0.6535
0.528172
X Variable 1 0.001377 0.0011 1.251739 0.239152
The coefficient for x variable is 0.001377 and p-value for the x variable is 0.239152.
So, it is not statistically significant at 95% level (Rumsey, n.d.). This means the stock
prices are not much explained using the unemployment numbers. The correlation
coefficient between the two is 0.368049527. The statistical significance is quite low
according to the high p-value therefore any correlation between the stock price and
the unemployment numbers maybe spurious.
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Summary output of regression between Galliford Stock Price and Housing price
Numbers:
Coefficients
Standard
Error t Stat P-value
Intercept 1731.488 2778.706 0.623127 0.547148
X Variable 1 -6.81143 23.20666 -0.29351 0.775132
The coefficient for x variable is -6.81143 and p-value for the x variable is 0.775132.
So, it is not statistically significant at 95% level. This means the stock prices are not
much explained using the HPI numbers. The correlation coefficient between the two
is -0.092. The statistical significance is quite low according to the high p-value and
even the correlation is close to zero so there seems no particular relationship
between stock price and HPI data.
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3.2 Analysis of a capital budgeting decision.
3.2.1 Selecting an investment project using capital budgeting methods and
analysing the risks of the project.
The capital budgeting methods that can be used for the selecting an investment
projects out of the given options are NPV, IRR, AAR and Payback period (Atrill and
McLaney, 2019). Appendix 4 shows the calculations of these investment appraisal
methods.
As the given cash-flows are in real terms ignoring the inflation projections, so the
rate of interest to discount these cash-flows should also be in real terms. To
calculate weighted average cost of capital (WACC), first return on equity can be
found using CAPM and then return on debt can be found using interest costs. Then
both returns can be added together according to the relative proportion of debt and
equity in the capital structure. The calculated WACC is 4.52% and in real terms it is
equal to 1.48%.
The values of different capital budgeting methods are given below:
Payback Period
Payback period for P = year of last negative cumulative
cash flows + ABS(last negative cumulative cash flows/ total
cash flows in next year) 2.94 years
Payback period for Q = year of last negative cumulative
cash flows + ABS(last negative cumulative cash flows/ total
cash flows in next year) 3.40 years
Payback period for R = year of last negative cumulative 3.83 years
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cash flows + ABS(last negative cumulative cash flows/ total
cash flows in next year)
Payback period for S = year of last negative cumulative
cash flows + ABS(last negative cumulative cash flows/ total
cash flows in next year) 3.37 years
NPV
P 20.03
Q 30.00
R 47.34
S 51.53
AAR
P's AAR 12.09%
Q's AAR 13.63%
R's AAR 15.16%
S's AAR 13.56%
IRR
P 10.63%
Q 10.60%
R 10.56%
S 10.43%
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The payback period method tells about the liquidity of the project that is its ability to
generate cash-flows to meet the upfront investment. The project with the shorter
payback period is preferred as its cash-flows quickly meet the initial investment.
Payback period of project P is the shortest at approximately 2.94 years. So, payback
period method recommends project P. This method is easy to understand but it
ignores the time value of money concept and it also does not consider cash-flows
after the payback period.
NPV method is most widely used capital budgeting method as this method uses the
time value of money to calculate the present values of all the future cash-flows of the
project. According to this rule a project with the maximum positive NPV is preferred
as that project will maximise the shareholders wealth. The issue with NPV is that this
method does not tell about the profitability of the project. NPV of project S is highest
at 51.53. So, NPV method recommends project S.
Accounting rate of return tells the projects ability to generate accounting profits over
its life by considering all the cash and non-cash items. It uses the average annual
accounting profits over the life of the project and the average investment but it
ignores the time value of money concept. AAR of project R is highest at 15.16%. So,
project R should be preferred according to ARR rule.
The IRR rule measures the profitability of the project by applying the time value of
money concept to the future cash-flows. According to this rule the project with the
highest IRR should be preferred. IRR of project P is highest at 10.63% and this is
greater than the cost of capital. So, IRR rule tells that this project will generate
sufficient returns after meeting the return requirements of the capital providers. The
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issue with the IRR method is that some time there can be multiple or no IRR
depending upon the cash-flows characteristics. IRR rule recommends project P.
There are conflicting decisions based upon different capital budgeting methods.
There is a constraint that firm can only undertake one out of the four projects. So, it
makes sense to take the project that maximises the shareholder’s wealth. This is
given by the project with the maximum NPV that is project S.
There are various risks involved in the capital budgeting analysis. The major issue is
the sensitivity of these investment appraisal techniques on the input variables. If the
forecasted cash-flows are different than expected then it can hugely affect the capital
budgeting decision. Another issue is that these methods vary according to the
magnitude of the project. For example the project S requires higher initial investment
and its cash-flows are also higher in absolute terms, so it gives higher NPV although
its profitability given by AAR or IRR method is not the highest. Also, it takes
somewhat longer time to meet the initial investments due to longer payback period.
Another issue with the methods like NPV is that they use the time value of money so
they are very sensitive to the discount rates. Even a small change in discount rates
can change the value of this method. Discount rate for these projects is taken equal
to the weighted average cost of capital of Galliford Try plc, given by the weighted
average of the required return on equity and required return on debt according to the
capital structure of the company. As, there is no mention on the probability of the
future cash flows of different projects or any other project specific risk so we cannot
adjust the company’s WACC to find appropriate cost of capital for the project.
3.2.2 Choice of funding for the project.
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The main choice of funding available to the Galliford Try plc is equity and debt. The
cost of debt is cheaper as compared to the cost of equity because investors see debt
as less risky because of the fixed payments and pledged assets (Wallstreetmojo,
n.d.). The cost of debt for the company is around 2% and its cost of equity is around
6.97% (calculations are shown in the appendix 4). The debt funding is low cost and it
does not affect the ownership of the existing shareholders but it increases the
financial leverage of the firm. The company needs to make fixed payments in future
in spite of its business operations, which can sometimes prove to be fatal for the
company. The equity funding is costlier but it does not need any fixed payments to
be made but the capital providers are paid from the future profits of the project. This
does not create any fixed burden for the firm but equity funding dilutes the ownership
of the current shareholders and they may not be able to take independent business
decisions in the future. The debt to equity ratio of Galliford Try plc is Debt/Equity =
(617.1+197.1)/ 776.5 = 104.86% (Galliford Annual Report, 2018). It means the
company has almost equal proportion of debt and equity in its capital structure. Its
debt level is in the acceptable range so the company can use cheap debt budgeting
to fund the project but care should be taken as the increased level of debt will
increase the financial leverage by increasing the debt to equity ratio and it can create
issues to the company if business is bad.
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4. Conclusion and Recommendation
The report analysed the share price movement of Galliford Try plc and it interpreted
the information provided by various descriptive statistics. It identified the relationship
between the stock close price and Unemployment data and House prices of UK. The
report further performed capital budgeting analysis to make an investment decision.
The daily return of Galliford Try plc and Bovis Homes plc is calculated for 2018 and
the standard deviation of the daily returns is found to be 2.61% for Galliford Try Plc
and 1.74% for Bovis Homes plc. This tells that the volatility of Galliford Try plc is
higher. The scatter plot is used to show the correlation between the close share price
of Galliford Try plc and unemployment and house prices monthly data. The
correlation coefficient between close share price of Galliford Try plc and monthly
Unemployment numbers is 0.368 and correlation between close share price of
Galliford Try plc and monthly HPI data is -0.0924. This shows there is low positive
relationship of the stock price with the unemployment data but it has no relationship
with the house prices numbers because of approximately zero correlation coefficient.
The report further found that these relationships do not have any statistical
significance because of high p-values.
The report performed capital budgeting analysis of four potential projects and found
that different investment appraisal methods recommended different projects. This
report recommended project S with the highest NPV of 51.53 as it will maximise the
overall wealth of the shareholders. The report further evaluated different funding
options like debt and equity. The calculated value of debt to equity ratio of the
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company for 2018 is 1.04. So, the report recommended the use of low cost debt
funding by Galliford Try plc to fund this project. The debt funding will increase the
debt to equity ratio of the firm which will increase its financial leverage. So, effective
debt management should be there in future for the long term success of the
company.
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5. List of References
Ahmad, N., Ahmed, R.R., Vveinhardt, J. and Streimikiene, D. (2016). Empirical
analysis of stock returns and volatility: evidence from Asian stock markets.
Technological and Economic Development of Economy. 22(6), pp.808-829. doi:
10.3846/20294913.2016.1213204.
Anderson, A. and Semmelroth, D. (n.d.). SCATTER PLOTS: GRAPHICAL
TECHNIQUE FOR STATISTICAL DATA [Online]. Available from:
https://www.dummies.com/programming/big-data/data-science/scatter-plots-
graphical-technique-for-statistical-data/ [Accessed 31 May 2019].
Atrill, P. & McLaney, E. (2019). Accounting and Finance for Non-Specialists. 11th ed.
Harlow: Pearson
Bloomberg. (n.d.). United Kingdom Rates & Bonds [Online]. Available from:
https://www.bloomberg.com/markets/rates-bonds/government-bonds/uk [Accessed
31 May 2019].
Galliford Try plc. (2018). GALLIFORD TRY plc- Annual Report 2018. Available from:
https://www.gallifordtry.co.uk/~/media/Files/G/GallifordTry/reports/2018/Annual
%20Report%202018.pdf [Accessed 31 May 2019].
KPMG. (2018.). Equity Market Risk premium – Research Summary. Available from:
(https://www.google.com/url?
sa=t&rct=j&q=&esrc=s&source=web&cd=5&ved=2ahUKEwj32L-
ysMXiAhVGX30KHSoLCXYQFjAEegQIBBAC&url=https%3A%2F%2Fassets.kpmg
%2Fcontent%2Fdam%2Fkpmg%2Fnl%2Fpdf%2F2019%2Fadvisory%2Fequity-
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market-research-summary.pdf&usg=AOvVaw3YyuuDEfX35Mv4Cb6wfblh [Accessed
31 May 2019].
Rumsey, D. J. (n.d.). WHAT A P-VALUE TELLS YOU ABOUT STATISTICAL DATA
[Online]. Available from: https://www.dummies.com/education/math/statistics/what-a-
p-value-tells-you-about-statistical-data/ [Accessed 31 May 2019].
UK Government (2019). A05 SA: Employment, unemployment and economic
inactivity by age group (seasonally adjusted) [Online]. Office for National Statistics.
Available from:
https://www.ons.gov.uk/file?uri=/employmentandlabourmarket/peopleinwork/
employmentandemployeetypes/datasets/
employmentunemploymentandeconomicinactivitybyagegroupseasonallyadjusteda05
sa/current/a05samay2019.xls [Accessed 31 May 2019].
UK Government (2019). UK House Price Index: data downloads March 2019
[online]. HM Land Registry. Available from: publicdata.landregistry.gov.uk/market-
trend-data/house-price-index-data/UK-HPI-full-file-2019-03.csv?
utm_medium=GOV.UK&utm_source=datadownload&utm_campaign=full_fil&utm_ter
m=9.30_22_05_19 [Accessed 31 May 2019].
Wallstreetmojo. (n.d.). Differences Between Debt and Equity Financing [Online].
Available from: https://www.wallstreetmojo.com/debt-vs-equity-financing/ [Accessed
31 May 2019].
Yahoo Finance. (n.d.). Galliford Try plc (GFRD.L)- Historical Data [Online]. Available
from: https://uk.finance.yahoo.com/quote/GFRD.L/history?
period1=1514745000&period2=1546281000&interval=1d&filter=history&frequency=1
d [Accessed 31 May 2019].
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Yahoo Finance. (n.d.). Bovis Homes Group PLC (BVS.L) Historical Data [Online].
Available from: https://uk.finance.yahoo.com/quote/BVS.L/history?
period1=1514745000&period2=1546281000&interval=1d&filter=history&frequency=1
d [Accessed 31 May 2019].
Yahoo Finance. (n.d.). Galliford Try plc (GFRD.L)- Summary [Online]. Available from:
https://uk.finance.yahoo.com/quote/GFRD.L?p=GFRD.L [Accessed 31 May 2019].
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Appendix 1
Stock price and return data of Galliford Try plc for year 2018.
Date Close
Retur
n
02-01-
2018
1159.7
3 -
03-01-
2018
1171.4
2 1.01%
04-01-
2018
1177.7
2 0.54%
05-01-
2018
1185.8
2 0.69%
08-01-
2018
1174.1
2
-
0.99%
09-01-
2018
1168.7
2
-
0.46%
10-01-
2018
1148.9
3
-
1.69%
11-01-
2018
1136.3
3
-
1.10%
12-01-
2018
1149.8
3 1.19%
15-01-
2018
1066.1
6
-
7.28%
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16-01-
2018
1060.7
6
-
0.51%
17-01-
2018
1061.6
6 0.08%
18-01-
2018
1048.1
6
-
1.27%
19-01-
2018
1045.4
6
-
0.26%
22-01-
2018
1029.2
7
-
1.55%
23-01-
2018
1029.2
7 0.00%
24-01-
2018
1006.7
8
-
2.19%
25-01-
2018
1018.4
7 1.16%
26-01-
2018
1009.4
7
-
0.88%
29-01-
2018
1034.6
7 2.50%
30-01-
2018
1002.2
8
-
3.13%
31-01-
2018
982.48
4
-
1.98%
01-02- 962.69 -
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2018 2.01%
02-02-
2018
936.59
8
-
2.71%
05-02-
2018
913.20
6
-
2.50%
06-02-
2018
882.61
6
-
3.35%
07-02-
2018
913.20
6 3.47%
08-02-
2018
897.91
1
-
1.67%
09-02-
2018 899.26 0.15%
12-02-
2018
885.31
5
-
1.55%
13-02-
2018
888.46
4 0.36%
14-02-
2018
719.76
8
-
18.99
%
15-02-
2018
773.75
1 7.50%
16-02-
2018
785.44
7 1.51%
19-02- 785.44 0.00%
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2018 7
20-02-
2018
783.64
8
-
0.23%
21-02-
2018
788.14
6 0.57%
22-02-
2018
786.79
7
-
0.17%
23-02-
2018 807.49 2.63%
26-02-
2018 808.39 0.11%
27-02-
2018
830.43
3 2.73%
28-02-
2018
825.93
4
-
0.54%
01-03-
2018
787.24
6
-
4.68%
02-03-
2018
749.00
9
-
4.86%
05-03-
2018
761.15
5 1.62%
06-03-
2018
749.90
8
-
1.48%
07-03-
2018 746.31
-
0.48%
Page 27 of 73

Continuation Page
08-03-
2018
761.15
5 1.99%
09-03-
2018
791.74
5 4.02%
12-03-
2018
883.06
6
11.53
%
13-03-
2018 868.67
-
1.63%
14-03-
2018
933.89
9 7.51%
15-03-
2018
906.00
8
-
2.99%
16-03-
2018
877.21
7
-
3.18%
19-03-
2018
874.96
8
-
0.26%
20-03-
2018
896.11
1 2.42%
21-03-
2018
870.91
9
-
2.81%
22-03-
2018
841.22
9
-
3.41%
23-03-
2018
846.17
7 0.59%
26-03- 843.47 -
Page 28 of 73

Continuation Page
2018 8 0.32%
27-03-
2018
853.37
5 1.17%
28-03-
2018 865.5 1.42%
29-03-
2018 835
-
3.52%
03-04-
2018 825
-
1.20%
04-04-
2018 826.5 0.18%
05-04-
2018 850.5 2.90%
06-04-
2018 888.5 4.47%
09-04-
2018 878
-
1.18%
10-04-
2018 868.5
-
1.08%
11-04-
2018 880 1.32%
12-04-
2018 884 0.45%
13-04-
2018 885.5 0.17%
Page 29 of 73

Continuation Page
16-04-
2018 879
-
0.73%
17-04-
2018 867
-
1.37%
18-04-
2018 887 2.31%
19-04-
2018 897.5 1.18%
20-04-
2018 897.5 0.00%
23-04-
2018 912.5 1.67%
24-04-
2018 912
-
0.05%
25-04-
2018 895
-
1.86%
26-04-
2018 902.5 0.84%
27-04-
2018 911.5 1.00%
30-04-
2018 918 0.71%
01-05-
2018 931 1.42%
02-05- 932 0.11%
Page 30 of 73

Continuation Page
2018
03-05-
2018 927
-
0.54%
04-05-
2018 931 0.43%
08-05-
2018 927.5
-
0.38%
09-05-
2018 931 0.38%
10-05-
2018 933 0.21%
11-05-
2018 942 0.96%
14-05-
2018 951 0.96%
15-05-
2018 947
-
0.42%
16-05-
2018 938.5
-
0.90%
17-05-
2018 957 1.97%
18-05-
2018 961.5 0.47%
21-05-
2018 972.5 1.14%
Page 31 of 73

Continuation Page
22-05-
2018 975 0.26%
23-05-
2018 969.5
-
0.56%
24-05-
2018 959
-
1.08%
25-05-
2018 959 0.00%
29-05-
2018 958.5
-
0.05%
30-05-
2018 973 1.51%
31-05-
2018 962.5
-
1.08%
01-06-
2018 981.5 1.97%
04-06-
2018 986.5 0.51%
05-06-
2018 982.5
-
0.41%
06-06-
2018 994.5 1.22%
07-06-
2018 1005 1.06%
08-06- 1006 0.10%
Page 32 of 73

Continuation Page
2018
11-06-
2018 997.5
-
0.84%
12-06-
2018 981
-
1.65%
13-06-
2018 976.5
-
0.46%
14-06-
2018 970
-
0.67%
15-06-
2018 961
-
0.93%
18-06-
2018 970 0.94%
19-06-
2018 958
-
1.24%
20-06-
2018 953
-
0.52%
21-06-
2018 915
-
3.99%
22-06-
2018 918 0.33%
25-06-
2018 904
-
1.53%
26-06-
2018 901.5
-
0.28%
Page 33 of 73

Continuation Page
27-06-
2018 899.5
-
0.22%
28-06-
2018 880
-
2.17%
29-06-
2018 873.5
-
0.74%
02-07-
2018 850
-
2.69%
03-07-
2018 857.5 0.88%
04-07-
2018 860.5 0.35%
05-07-
2018 849.5
-
1.28%
06-07-
2018 847
-
0.29%
09-07-
2018 858.5 1.36%
10-07-
2018 870.5 1.40%
11-07-
2018 861.5
-
1.03%
12-07-
2018 865 0.41%
13-07- 823.5 -
Page 34 of 73

Continuation Page
2018 4.80%
16-07-
2018
828.14
7 0.56%
17-07-
2018 866.5 4.63%
18-07-
2018 881 1.67%
19-07-
2018 874
-
0.79%
20-07-
2018 871.5
-
0.29%
23-07-
2018 854.5
-
1.95%
24-07-
2018 859 0.53%
25-07-
2018 859.5 0.06%
26-07-
2018 868.5 1.05%
27-07-
2018 885.5 1.96%
30-07-
2018 903 1.98%
31-07-
2018 932.5 3.27%
Page 35 of 73

Continuation Page
01-08-
2018 919.5
-
1.39%
02-08-
2018 913.5
-
0.65%
03-08-
2018 939.5 2.85%
06-08-
2018 960.5 2.24%
07-08-
2018 962 0.16%
08-08-
2018 971 0.94%
09-08-
2018 965
-
0.62%
10-08-
2018 971 0.62%
13-08-
2018 963
-
0.82%
14-08-
2018 956.5
-
0.67%
15-08-
2018 947.5
-
0.94%
16-08-
2018 945
-
0.26%
17-08- 956 1.16%
Page 36 of 73

Continuation Page
2018
20-08-
2018 970.5 1.52%
21-08-
2018 988.5 1.85%
22-08-
2018 998.5 1.01%
23-08-
2018 997
-
0.15%
24-08-
2018 990.5
-
0.65%
28-08-
2018 991 0.05%
29-08-
2018 981
-
1.01%
30-08-
2018 984.5 0.36%
31-08-
2018 970
-
1.47%
03-09-
2018 979.5 0.98%
04-09-
2018 964.5
-
1.53%
05-09-
2018 981 1.71%
Page 37 of 73

Continuation Page
06-09-
2018 983 0.20%
07-09-
2018 986 0.31%
10-09-
2018 993 0.71%
11-09-
2018 999 0.60%
12-09-
2018 1104
10.51
%
13-09-
2018 1103
-
0.09%
14-09-
2018 1098
-
0.45%
17-09-
2018 1099 0.09%
18-09-
2018 1089
-
0.91%
19-09-
2018 1073
-
1.47%
20-09-
2018 1065
-
0.75%
21-09-
2018 1031
-
3.19%
24-09- 1043 1.16%
Page 38 of 73

Continuation Page
2018
25-09-
2018 1046 0.29%
26-09-
2018 1028
-
1.72%
27-09-
2018 1022
-
0.58%
28-09-
2018 1011
-
1.08%
01-10-
2018 1007
-
0.40%
02-10-
2018 989.5
-
1.74%
03-10-
2018 978
-
1.16%
04-10-
2018 959.5
-
1.89%
05-10-
2018 953
-
0.68%
08-10-
2018 940
-
1.36%
09-10-
2018 926
-
1.49%
10-10-
2018 915
-
1.19%
Page 39 of 73

Continuation Page
11-10-
2018 893.5
-
2.35%
12-10-
2018 905 1.29%
15-10-
2018 887.5
-
1.93%
16-10-
2018 918.5 3.49%
17-10-
2018 892
-
2.89%
18-10-
2018 892 0.00%
19-10-
2018 865.5
-
2.97%
22-10-
2018 860
-
0.64%
23-10-
2018 850.5
-
1.10%
24-10-
2018 848.5
-
0.24%
25-10-
2018 842
-
0.77%
26-10-
2018 842.5 0.06%
29-10- 858 1.84%
Page 40 of 73

Continuation Page
2018
30-10-
2018 876.5 2.16%
31-10-
2018 874
-
0.29%
01-11-
2018 888.5 1.66%
02-11-
2018 886
-
0.28%
05-11-
2018 891.5 0.62%
06-11-
2018 893.5 0.22%
07-11-
2018 900.5 0.78%
08-11-
2018 861
-
4.39%
09-11-
2018 872 1.28%
12-11-
2018 840
-
3.67%
13-11-
2018 857.5 2.08%
14-11-
2018 857.5 0.00%
Page 41 of 73

Continuation Page
15-11-
2018 845
-
1.46%
16-11-
2018 828
-
2.01%
19-11-
2018 814
-
1.69%
20-11-
2018 799
-
1.84%
21-11-
2018 795
-
0.50%
22-11-
2018 797 0.25%
23-11-
2018 795
-
0.25%
26-11-
2018 791.5
-
0.44%
27-11-
2018 779.5
-
1.52%
28-11-
2018 755
-
3.14%
29-11-
2018 740
-
1.99%
30-11-
2018 719.5
-
2.77%
03-12- 700 -
Page 42 of 73

Continuation Page
2018 2.71%
04-12-
2018 671.5
-
4.07%
05-12-
2018 678.5 1.04%
06-12-
2018 641
-
5.53%
07-12-
2018 648 1.09%
10-12-
2018 597
-
7.87%
11-12-
2018 595
-
0.34%
12-12-
2018 628 5.55%
13-12-
2018 636.5 1.35%
14-12-
2018 607.5
-
4.56%
17-12-
2018 569
-
6.34%
18-12-
2018 565.5
-
0.62%
19-12-
2018 588 3.98%
Page 43 of 73

Continuation Page
20-12-
2018 601 2.21%
21-12-
2018 595.5
-
0.92%
24-12-
2018 595
-
0.08%
27-12-
2018 576.5
-
3.11%
28-12-
2018 627 8.76%
31-12-
2018 623
-
0.64%
Appendix 2
Stock price and return data of Bovis Homes plc’c for year 2018.
Date Close Return
02-01-
2018 1178.5 -
03-01-
2018 1191 1.06%
04-01-
2018 1185
-
0.50%
05-01- 1190 0.42%
Page 44 of 73

Continuation Page
2018
08-01-
2018 1174
-
1.34%
09-01-
2018 1173.5
-
0.04%
10-01-
2018 1151.5
-
1.87%
11-01-
2018 1149
-
0.22%
12-01-
2018 1165 1.39%
15-01-
2018 1149.5
-
1.33%
16-01-
2018 1143.5
-
0.52%
17-01-
2018 1136
-
0.66%
18-01-
2018 1129.5
-
0.57%
19-01-
2018 1132 0.22%
22-01-
2018 1121.5
-
0.93%
23-01-
2018 1137 1.38%
Page 45 of 73

Continuation Page
24-01-
2018 1126.5
-
0.92%
25-01-
2018 1132.5 0.53%
26-01-
2018 1145 1.10%
29-01-
2018 1146.5 0.13%
30-01-
2018 1114.5
-
2.79%
31-01-
2018 1095.5
-
1.70%
01-02-
2018 1100 0.41%
02-02-
2018 1087
-
1.18%
05-02-
2018 1057
-
2.76%
06-02-
2018 1039
-
1.70%
07-02-
2018 1064.5 2.45%
08-02-
2018 1024
-
3.80%
09-02- 1072 4.69%
Page 46 of 73

Continuation Page
2018
12-02-
2018 1054.5
-
1.63%
13-02-
2018 1038
-
1.56%
14-02-
2018 1054 1.54%
15-02-
2018 1073.5 1.85%
16-02-
2018 1069.5
-
0.37%
19-02-
2018 1068
-
0.14%
20-02-
2018 1079 1.03%
21-02-
2018 1086 0.65%
22-02-
2018 1082
-
0.37%
23-02-
2018 1079
-
0.28%
26-02-
2018 1074.5
-
0.42%
27-02-
2018 1073.5
-
0.09%
Page 47 of 73

Continuation Page
28-02-
2018 1050.5
-
2.14%
01-03-
2018 1068.5 1.71%
02-03-
2018 1083 1.36%
05-03-
2018 1132 4.52%
06-03-
2018 1152 1.77%
07-03-
2018 1167 1.30%
08-03-
2018 1187.5 1.76%
09-03-
2018 1194 0.55%
12-03-
2018 1170
-
2.01%
13-03-
2018 1149.5
-
1.75%
14-03-
2018 1164.5 1.30%
15-03-
2018 1151.5
-
1.12%
16-03- 1155 0.30%
Page 48 of 73

Continuation Page
2018
19-03-
2018 1171 1.39%
20-03-
2018 1194 1.96%
21-03-
2018 1204.5 0.88%
22-03-
2018 1170.5
-
2.82%
23-03-
2018 1181 0.90%
26-03-
2018 1170.5
-
0.89%
27-03-
2018 1179 0.73%
28-03-
2018 1183 0.34%
29-03-
2018 1139
-
3.72%
03-04-
2018 1138
-
0.09%
04-04-
2018 1150.5 1.10%
05-04-
2018 1164.5 1.22%
Page 49 of 73

Continuation Page
06-04-
2018 1165.5 0.09%
09-04-
2018 1160.5
-
0.43%
10-04-
2018 1156
-
0.39%
11-04-
2018 1168 1.04%
12-04-
2018 1178 0.86%
13-04-
2018 1184 0.51%
16-04-
2018 1188 0.34%
17-04-
2018 1181.5
-
0.55%
18-04-
2018 1202.5 1.78%
19-04-
2018 1222 1.62%
20-04-
2018 1240 1.47%
23-04-
2018 1252.5 1.01%
24-04- 1235 -
Page 50 of 73

Continuation Page
2018 1.40%
25-04-
2018 1225
-
0.81%
26-04-
2018 1214
-
0.90%
27-04-
2018 1230 1.32%
30-04-
2018 1235.5 0.45%
01-05-
2018 1239 0.28%
02-05-
2018 1236.5
-
0.20%
03-05-
2018 1240 0.28%
04-05-
2018 1249 0.73%
08-05-
2018 1263 1.12%
09-05-
2018 1275.5 0.99%
10-05-
2018 1258
-
1.37%
11-05-
2018 1280.5 1.79%
Page 51 of 73

Continuation Page
14-05-
2018 1264
-
1.29%
15-05-
2018 1298 2.69%
16-05-
2018 1278
-
1.54%
17-05-
2018 1301.5 1.84%
18-05-
2018 1290
-
0.88%
21-05-
2018 1296 0.47%
22-05-
2018 1291
-
0.39%
23-05-
2018 1278.5
-
0.97%
24-05-
2018 1274
-
0.35%
25-05-
2018 1298 1.88%
29-05-
2018 1262
-
2.77%
30-05-
2018 1262.5 0.04%
31-05- 1259.5 -
Page 52 of 73

Continuation Page
2018 0.24%
01-06-
2018 1268 0.67%
04-06-
2018 1260
-
0.63%
05-06-
2018 1251.5
-
0.67%
06-06-
2018 1275.5 1.92%
07-06-
2018 1266
-
0.74%
08-06-
2018 1270.5 0.36%
11-06-
2018 1273.5 0.24%
12-06-
2018 1230
-
3.42%
13-06-
2018 1234 0.33%
14-06-
2018 1236 0.16%
15-06-
2018 1238 0.16%
18-06-
2018 1233.5
-
0.36%
Page 53 of 73

Continuation Page
19-06-
2018 1210.5
-
1.86%
20-06-
2018 1202
-
0.70%
21-06-
2018 1147
-
4.58%
22-06-
2018 1160 1.13%
25-06-
2018 1132
-
2.41%
26-06-
2018 1137 0.44%
27-06-
2018 1130
-
0.62%
28-06-
2018 1119.5
-
0.93%
29-06-
2018 1145.5 2.32%
02-07-
2018 1117
-
2.49%
03-07-
2018 1124 0.63%
04-07-
2018 1122
-
0.18%
05-07- 1098 -
Page 54 of 73

Continuation Page
2018 2.14%
06-07-
2018 1098.5 0.05%
09-07-
2018 1110 1.05%
10-07-
2018 1112 0.18%
11-07-
2018 1117 0.45%
12-07-
2018 1129.5 1.12%
13-07-
2018 1140 0.93%
16-07-
2018 1135
-
0.44%
17-07-
2018 1145.5 0.93%
18-07-
2018 1153.5 0.70%
19-07-
2018 1155.5 0.17%
20-07-
2018 1152
-
0.30%
23-07-
2018 1112
-
3.47%
Page 55 of 73

Continuation Page
24-07-
2018 1123.5 1.03%
25-07-
2018 1150.5 2.40%
26-07-
2018 1141
-
0.83%
27-07-
2018 1155 1.23%
30-07-
2018 1142.5
-
1.08%
31-07-
2018 1153.5 0.96%
01-08-
2018 1140
-
1.17%
02-08-
2018 1120.5
-
1.71%
03-08-
2018 1128 0.67%
06-08-
2018 1124.5
-
0.31%
07-08-
2018 1139 1.29%
08-08-
2018 1132.5
-
0.57%
09-08- 1130 -
Page 56 of 73

Continuation Page
2018 0.22%
10-08-
2018 1123
-
0.62%
13-08-
2018 1112.5
-
0.93%
14-08-
2018 1111.5
-
0.09%
15-08-
2018 1100
-
1.03%
16-08-
2018 1129 2.64%
17-08-
2018 1137 0.71%
20-08-
2018 1133.5
-
0.31%
21-08-
2018 1143 0.84%
22-08-
2018 1132
-
0.96%
23-08-
2018 1140 0.71%
24-08-
2018 1122
-
1.58%
28-08-
2018 1131.5 0.85%
Page 57 of 73

Continuation Page
29-08-
2018 1121
-
0.93%
30-08-
2018 1135.5 1.29%
31-08-
2018 1125
-
0.92%
03-09-
2018 1136 0.98%
04-09-
2018 1111.5
-
2.16%
05-09-
2018 1131.5 1.80%
06-09-
2018 1146 1.28%
07-09-
2018 1126.5
-
1.70%
10-09-
2018 1143 1.46%
11-09-
2018 1130
-
1.14%
12-09-
2018 1138 0.71%
13-09-
2018 1134.5
-
0.31%
14-09- 1142 0.66%
Page 58 of 73

Continuation Page
2018
17-09-
2018 1145.5 0.31%
18-09-
2018 1135
-
0.92%
19-09-
2018 1153.5 1.63%
20-09-
2018 1161 0.65%
21-09-
2018 1131
-
2.58%
24-09-
2018 1134.5 0.31%
25-09-
2018 1159 2.16%
26-09-
2018 1162.5 0.30%
27-09-
2018 1084
-
6.75%
28-09-
2018 1072.5
-
1.06%
01-10-
2018 1053
-
1.82%
02-10-
2018 1038
-
1.42%
Page 59 of 73

Continuation Page
03-10-
2018 1048 0.96%
04-10-
2018 1038.5
-
0.91%
05-10-
2018 1038
-
0.05%
08-10-
2018 1026.5
-
1.11%
09-10-
2018 1025
-
0.15%
10-10-
2018 1020.5
-
0.44%
11-10-
2018 986.6
-
3.32%
12-10-
2018 1019 3.28%
15-10-
2018 998.2
-
2.04%
16-10-
2018 1008 0.98%
17-10-
2018 996.2
-
1.17%
18-10-
2018 988
-
0.82%
19-10- 935 -
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Continuation Page
2018 5.36%
22-10-
2018 939.8 0.51%
23-10-
2018 932
-
0.83%
24-10-
2018 928.6
-
0.36%
25-10-
2018 936.2 0.82%
26-10-
2018 929.4
-
0.73%
29-10-
2018 937.6 0.88%
30-10-
2018 953 1.64%
31-10-
2018 969 1.68%
01-11-
2018 1020.5 5.31%
02-11-
2018 1038.5 1.76%
05-11-
2018 1033
-
0.53%
06-11-
2018 1027
-
0.58%
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Continuation Page
07-11-
2018 1012
-
1.46%
08-11-
2018 1033.5 2.12%
09-11-
2018 1040 0.63%
12-11-
2018 1005
-
3.37%
13-11-
2018 1034 2.89%
14-11-
2018 1040.5 0.63%
15-11-
2018 966
-
7.16%
16-11-
2018 945
-
2.17%
19-11-
2018 937.6
-
0.78%
20-11-
2018 914.2
-
2.50%
21-11-
2018 923.4 1.01%
22-11-
2018 941 1.91%
23-11- 958.8 1.89%
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2018
26-11-
2018 946
-
1.34%
27-11-
2018 928
-
1.90%
28-11-
2018 885.8
-
4.55%
29-11-
2018 873
-
1.45%
30-11-
2018 859.4
-
1.56%
03-12-
2018 866.8 0.86%
04-12-
2018 848.6
-
2.10%
05-12-
2018 880 3.70%
06-12-
2018 862
-
2.05%
07-12-
2018 878.4 1.90%
10-12-
2018 835.4
-
4.90%
11-12-
2018 845.6 1.22%
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12-12-
2018 876.8 3.69%
13-12-
2018 857
-
2.26%
14-12-
2018 854
-
0.35%
17-12-
2018 828
-
3.04%
18-12-
2018 838.4 1.26%
19-12-
2018 843.8 0.64%
20-12-
2018 846.6 0.33%
21-12-
2018 842.6
-
0.47%
24-12-
2018 838.4
-
0.50%
27-12-
2018 831
-
0.88%
28-12-
2018 855.2 2.91%
31-12-
2018 861.8 0.77%
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Appendix 3
Galliford Try plc close price, unemployment numbers and HPI monthly data for 2018.
Date
Galliford Try plc
Close Price
Unemploymen
t
Numbers
House Pricing Data (data
set B)
Jan-18 1159.72998 1453392 117.6820322
Feb-18 962.690002 1423271 117.9914301
Mar-18 787.245972 1424700 117.28005
Apr-18 825 1415879 118.3640419
May-18 931 1410844 118.9013548
Jun-18 981.5 1359938 119.7021746
Jul-18 850 1360562 121.2068519
Aug-18 919.5 1363464 121.6456411
Sep-18 979.5 1381306 121.4349921
Oct-18 1007 1380090 121.2867735
Nov-18 888.5 1371698 120.7089155
Dec-18 700 1363012 120.525562
Appendix 4
Calculations for capital budgeting analysis:
As the given cash-flows are in real terms ignoring the inflation
projections, so the rate of interest to discount these cash-flows should
also be in real terms.
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Given, tax rate needs to be ignored.
Beta (Yahoo finance, n.d.) 1
Risk free rate or yield on 30 year government bond
(Bloomberg, n.d.).
1.47%
Market risk premium (KPMG Equity Market Risk premium
– Summary, 2018).
5.50%
Using, CAPM: return on equity, Re=risk free
rate+beta*(market risk premium). 6.97%
Return on debt, Rd = interest cost/ (short term borrowing
+ long term borrowing) = 17.2/(617.1 + 197.1) (Galliford
Try plc Annual report, 2018). 2%
Proportion of debt in the capital structure, Pd:
Debt/Debt+Equity 51%
Proportion of equity in the capital structure, Pe:
Equity/Debt+Equity 49%
WACC = Pd Rd (1-tax) + Pe Re 4.52%
Taking real discount rate using fisher equation (1+ nominal rate) = (1+
real rate) * (1+ inflation rate)
Given, inflation rate = 3%
Real WACC = (1.0452/1.03)- 1 1.48%
Annual Depreciation expense for P (Initial investment- residual
value)/Project life
16.4
Annual Depreciation expense for Q (Initial investment- residual 23
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value)/Project life
Annual Depreciation expense for R (Initial investment- residual
value)/Project life
32
Annual Depreciation expense for S (Initial investment- residual
value)/Project life
40
We are ignoring tax rate for these projects and depreciation is non-cash expense.
So, there will be no effect of depreciation on cash-flows not even from tax benefits.
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Periods 0 1 2 3 4 5
P -84 26 29 31 10 10
Residual Value at
end of year 5 2
-84 26 29 31 10 12
Q -125 48 35 34 20 14
Residual Value at
end of year 5 10
-125 48 35 34 20 24
R -175 57 45 40 40 35
Residual Value at
end of year 5 15
-175 57 45 40 40 50
S -218 78 67 60 35 22
Residual Value at
end of year 5 18
-218 78 67 60 35 40
Payback 0 1 2 3 4 5
P: Cumulative cash
flows (cashflows in
period n =
cashflows in period
n + cashflows in
period n-1) -84 -58 -29 2 12 24
Payback period for
P = year of last
negative
cumulative

Continuation Page
NPV
P 20.03
Q 30.00
R 47.34
S 51.53
ARR 0 1 2 3 4 5
P: Cash flows -84 26 29 31 10 12
Depreciation costs 16.4 16.4 16.4 16.4 16.4
Accounting profits (Cash
flows - depreciation) 9.6 12.6 14.6 -6.4 -4.4
Average annual profit = Sum
of all profits/5 5.2
Average investment =
(Starting investment +
Residual value)/2 43
P's AAR 12.09%
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Q: Cash flows -125 48 35 34 20 24
Depreciation costs 23 23 23 23 23
Accounting profits (Cash
flows - depreciation) 25 12 11 -3 1
Average annual profit = Sum
of all profits/5 9.2
Average investment =
(Starting investment +
Residual value)/2 67.5
Q's AAR 13.63%
R: Cash flows -175 57 45 40 40 50
Depreciation costs 32 32 32 32 32
Accounting profits (Cash
flows - depreciation) 25 13 8 8 18
Average annual profit = Sum
of all profits/5 14.4
Average investment =
(Starting investment +
Residual value)/2 95
R's AAR 15.16%
S: Cash flows -218 78 67 60 35 40
Depreciation costs 40 40 40 40 40
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Continuation Page
Accounting profits (Cash
flows - depreciation) 38 27 20 -5 0
Average annual profit = Sum
of all profits/5 16
Average investment =
(Starting investment +
Residual value)/2 118
S's AAR 13.56%
IRR
P 10.63%
Q 10.60%
R 10.56%
S 10.43%
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Continuation Page
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