Using the attached spreadsheet, answer the following questions -

• How has this company returned cash to its owners?

• Has it paid dividends, bought back stock, or spun off assets?

• Given this firms characteristics today, how would you recommend that they return cash to stockholders (assuming that they have excess cash)?

Analysis of Dividend Policy Objective Inputs need Output Analysis of Dividend Policy 1. To compare how much a firm has returned to its stockholder historically (up to 10 years) with 2. To provide an assessment of project quality (ROE compared to cost of equity) and stock price 3. To provide forecasts of how much cash the firm will have available for stock buybacks in the f For historical analysis: a. Net Income b. Depreciation, amortization and other non-cash charges c. Capital expenditures: Please include acquisitions as part of capital expenditures d. Non-cash working capital changes In entering these numbers, please make sure that you get the signs right (check the comment box e. Dividends: Only cash dividends should be shown here (ignore stock dividends) f. Stock Buybacks: Include the cash flow associated with stock buybacks. For project assessment and stock price performance analysis a. Beta: You should really use an average beta over the historical period, but go ahead and use yo b. Book Value of Equity: To compute return on equity. c. Return on the stock: This is the total return you would have made as an investor: It includes pr d. Riskfree rate: The one-year government security rate at the start of each year (use the T.Bill ra e. Return on Stock Market: This is the total return on the stock market each year (You can get the last two from the worksheet that is part of this spreadsheet that reports historical For forecasts a. Expected growth rates in net income, dividends, depreciation, capital expenditures and revenue b. Working capital as a percent of revenues c. Debt as a percent of reinvestment, looking forward. As a default, you can use your historical av Historical Analysis 1. FCFE and Cash Returned each year for the historical period 2. Returns on equity, the stock and your required return each year for the historical period 3. Averages of both over the entire period Forecasts 1. Forecasted FCFE for next 5 years 2. Forecasted dividends for next 5 years 3. Cash available each year for stock buybacks for next 5 years. cally (up to 10 years) with how much it could have returned. of equity) and stock price performance over the period. for stock buybacks in the future xpenditures ht (check the comment box on each of these inputs) k dividends) od, but go ahead and use your current beta if you do not have this. s an investor: It includes price appreciation + dividend yield each year each year (use the T.Bill rate) each year sheet that reports historical data on both) al expenditures and revenues ou can use your historical average. the historical period Section 1: Inputs for estimating Dividends and FCFE How many years of historical data do you have available? Enter the following data for the years for which you have data (starting with earliest year and ending with the m Year Net Income Depreciation & AmortizaCapital Spending & operating inve 1 $1,345.00 $481.00 $226.00 2 $1,298.00 $277.00 $210.00 3 $1,006.00 $307.00 $195.00 4 $515.00 $378.00 $233.00 5 $1,439.00 $397.00 $270.00 0 0 0 0 0 Enter the dollar dividends paid and equity repurchases for each year of historical data (staring with earliest year Year Dividends (aggregate) Equity Repurchases (in $) 1 $279.00 $622.00 2 $324.00 $108.00 3 $401.00 $317.00 4 $462.00 $100.00 5 $521.00 $700.00 0 0 0 0 0 Section 2: Assessing Investment Quality and Stock Performance The following section of the dividend policy analysis looks at the quality of your firm's investments and the risk-a you have a measure of excess returns (ROIC- Cost of capital) or a Jensen's alpha computed for your stock, you ca The last set of inputs to this analysis relate to project choice and performance: Enter the beta for the equity of this firm: 0.85 Enter the following data relating to performance (starting with earliest year): (Make sure that you update the ris Year BV: Equity Annual return on stock T.Bill rate 1 $7,173.60 15.41% 0.03% 2 $7,683.00 -0.48% 0.05% 3 $8,597.00 27.48% 0.14% 4 $9,047.00 25.08% 0.14% 5 $8,595.00 16.27% 0.31% 0 0 0 0 0 Section 3: Inputs for forecasting future dividends and FCFE Use these inputs if you want to make projection of FCFE for the future Expected growth in Revenues over next 5 years = Expected growth in Net Income over next 5 years = Expected growth in capital expenditures in next 5 years = Expected growth in depreciation in next 5 years = Enter non-cash working capital as a percent of revenues Enter revenues from most recent year = Enter net income from most recent year or normalized value = Enter capital expenditures from most recent year or normalized value = Enter depreciation in most recent year = Enter dividends paid in the most recent year = Do you want to use the debt ratio from your historical analysis? If yes, the debt ratio used will be If no, enter the debt to capital ratio to use in forecast Expected growth in dividends 88% 5 (number of years) Use less years, if you do not have the data. rliest year and ending with the most recent year) Chg in Non-Cash WC Net Debt Issued $0.00 $737.00 $0.00 ($4.00) $0.00 $1,005.00 $0.00 $1,159.00 $0.00 $48.00 al data (staring with earliest year): (Equity repurchases are in the statement of cash flows) firm's investments and the risk-adjusted, market-adjusted performance of your stock over the period. If a computed for your stock, you can use those measures instead of the ones computed here. Make sure that you update the riskfree rate and return on the market from the attached worksheet to reflect the time period Return on market 2.07% Note: I have the numbers for the US in the Historical stock & t.bill worksheet. 15.83% Please match up the annual data for the years for your company. 32.15% If you are in foreign market and don't 13.52% have these numbers, leave them at the US levels. 1.36% 10.39% 5.00% 10.39% 5.00% 0.00% $9,946 $1,006 $195 $307 $401 No -417.14% 85% eet to reflect the time period for your data) ck & t.bill worksheet. Analysis of Past Dividends 1 2 3 4 5 Net Income $1,345.00 $1,298.00 $1,006.00 $515.00 $1,439.00 - (Cap. Exp - Depr) ($255.00) ($67.00) ($112.00) ($145.00) ($127.00) - Working Capital $0.00 $0.00 $0.00 $0.00 $0.00 $737.00 ($4.00) $1,005.00 $1,159.00 $48.00 $2,337.00 $1,361.00 $2,123.00 $1,819.00 $1,614.00 Dividends $279.00 $324.00 $401.00 $462.00 $521.00 + Equity Repurchases $622.00 $108.00 $317.00 $100.00 $700.00 = Cash to Stockholders $901.00 $432.00 $718.00 $562.00 $1,221.00 Payout Ratio 20.74% 24.96% 39.86% 89.71% 36.21% Cash Paid as % of FCFE 38.55% 31.74% 33.82% 30.90% 75.65% ROE 18.75% 16.89% 11.70% 5.69% 16.74% Required rate of return 1.76% 13.46% 27.35% 11.51% 1.20% ROE - Cost of Equity 16.99% 3.43% -15.65% -5.82% 15.54% Returns on stock -0.48% 27.48% 25.08% 16.27% 0.00% Required rate of return 1.76% 13.46% 27.35% 11.51% 1.20% Jensen's alpha Index -2.24% 1 14.02% 1 -2.27% 1 4.76% 1 -1.20% 1 + Net Debt Issued = Free CF to Equity Dividend Ratios Performance Ratios 1. Accounting Measure 2. Stock Performance Measure Summary of calculations Average Standard Deviation Maximum Minimum $1,850.80 $389.70 $2,337.00 $1,361.00 Dividends $397.40 $98.58 $521.00 $279.00 Dividends+Repurchases $766.80 $308.51 $1,221.00 $432.00 Dividend Payout Ratio 35.46% Cash Paid as % of FCFE 41.43% Free CF to Equity ROE 13.63% Return on Stock Err:509 Required Return 0.00% ROE - Required return 2.58% Actual - Required Return #ERROR! ends 0 0 0 0 0 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! 0.00% 0.00% 0.00% 0.00% 0.00% #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! Err:509 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Err:509 1 0.00% 1 0.00% 1 0.00% 1 0.00% 1 FORECASTED FCFE AND DIVIDENDS Debt Ratio used in forecasting FCFE = 85.00% Net Income - (Cap Ex - Deprec'n) (1 - DR) - Change in Working Capital (1 - DR) FCFE Expected Dividends Cash available for stock buybacks Forecasted FCFE 1 2 $1,056 $1,109 ($16) ($15) $0 $0 $1,072 $1,124 $754 $1,417 $318 ($293) 3 $1,165 ($14) $0 $1,179 $2,665 ($1,486) 4 $1,223 ($13) $0 $1,236 $5,009 ($3,773) 5 $1,284 ($11) $0 $1,295 $9,417 ($8,122) Revenues Non-cash WC $10,979 $0 $13,379 $0 $14,770 $0 $16,304 $0 $12,120 $0 Year 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 S&P 500 3-month T.Bill 10-year T. Bond 43.81% 3.08% 0.84% -8.30% 3.16% 4.20% -25.12% 4.55% 4.54% -43.84% 2.31% -2.56% -8.64% 1.07% 8.79% 49.98% 0.96% 1.86% -1.19% 0.32% 7.96% 46.74% 0.18% 4.47% 31.94% 0.17% 5.02% -35.34% 0.30% 1.38% 29.28% 0.08% 4.21% -1.10% 0.04% 4.41% -10.67% 0.03% 5.40% -12.77% 0.08% -2.02% 19.17% 0.34% 2.29% 25.06% 0.38% 2.49% 19.03% 0.38% 2.58% 35.82% 0.38% 3.80% -8.43% 0.38% 3.13% 5.20% 0.57% 0.92% 5.70% 1.02% 1.95% 18.30% 1.10% 4.66% 30.81% 1.17% 0.43% 23.68% 1.48% -0.30% 18.15% 1.67% 2.27% -1.21% 1.89% 4.14% 52.56% 0.96% 3.29% 32.60% 1.66% -1.34% 7.44% 2.56% -2.26% -10.46% 3.23% 6.80% 43.72% 1.78% -2.10% 12.06% 3.26% -2.65% 0.34% 3.05% 11.64% 26.64% 2.27% 2.06% -8.81% 2.78% 5.69% 22.61% 3.11% 1.68% 16.42% 3.51% 3.73% 12.40% 3.90% 0.72% -9.97% 4.84% 2.91% 23.80% 4.33% -1.58% 10.81% 5.26% 3.27% -8.24% 6.56% -5.01% 3.56% 6.69% 16.75% 14.22% 4.54% 9.79% 18.76% 3.95% 2.82% 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -14.31% -25.90% 37.00% 23.83% -6.98% 6.51% 18.52% 31.74% -4.70% 20.42% 22.34% 6.15% 31.24% 18.49% 5.81% 16.54% 31.48% -3.06% 30.23% 7.49% 9.97% 1.33% 37.20% 22.68% 33.10% 28.34% 20.89% -9.03% -11.85% -21.97% 28.36% 10.74% 4.83% 15.61% 5.48% -36.55% 25.94% 14.82% 2.07% 15.83% 6.73% 7.78% 5.99% 4.97% 5.13% 6.93% 9.94% 11.22% 14.30% 11.01% 8.45% 9.61% 7.49% 6.04% 5.72% 6.45% 8.11% 7.55% 5.61% 3.41% 2.98% 3.99% 5.52% 5.02% 5.05% 4.73% 4.51% 5.76% 3.67% 1.66% 1.03% 1.23% 3.01% 4.68% 4.64% 1.59% 0.14% 0.13% 0.03% 0.05% 3.66% 1.99% 3.61% 15.98% 1.29% -0.78% 0.67% -2.99% 8.20% 32.81% 3.20% 13.73% 25.71% 24.28% -4.96% 8.22% 17.69% 6.24% 15.00% 9.36% 14.21% -8.04% 23.48% 1.43% 9.94% 14.92% -8.25% 16.66% 5.57% 15.12% 0.38% 4.49% 2.87% 1.96% 10.21% 20.10% -11.12% 8.46% 16.04% 2.97% 2012 Inventories $18.00 Other assets -$151.00 Accounts payable -$608.00 Income taxes -$242.00 Chg in WC (Cash flow effec -$1,091.00 2011 -$518.00 -$199.00 -$189.00 -$367.00 $134.00 -$1,139.00 2010 -$686.00 -$127.00 $42.00 $649.00 -$144.00 -$266.00 Commercial Paper Borrowings Reductions of borrowings Net Debt (Cash flow effect) $393.00 $2,350.00 -$1,096.00 $1,647.00 $1,190.00 $0.00 -$1,371.00 -$181.00 Receivables -$108.00 $467.00 $3,779.00 -$3,822.00 $424.00 2010 2011 2012 2013 2014 2015 Stock price Dividends Returns 48.24 0.63 15.41% 54.92 0.753 -0.48% 53.75 0.904 27.48% 67.42 1.1 25.08% 83.07 1.26 16.27% 95.17 1.415