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Barnacle Ltd.
Barnacle Ltd., is a publicly listed Australian company that your client is following closely, however your client does not have the requisite skills to evaluate the company and, as such, has provided you with sufficient information. The historical price of Barnacle Ltd. is given below. Barnacle Ltd. is closely integrated with the Australian economy and so the rates of return for the Australian economy as a whole can be used in the evaluation process. You know that Australian Treasury bills currently pay a return of 3% p.a., and the stock market return over the same period averaged 12% p.a. You have calculated the standard deviation of the market returns to be 9% p.a. Barnacle's beta is estimated at 0.95. Lastly, you have identified the historical returns and dividends (below). Year Price Dividend 2010 $8.35 2011 $9.23 $0.60 2012 $9.76 $0.75 2013 $8.65 2014 $9.89 2015 $10.50 $0.75 2016 $10.45 $0.45 2017 $13.05 Using the above information, identify whether it is a good idea, for your client, to invest in Barnacle. Explain your reasoning for your decision.
