Problem 7-1 On November 14, Thorogood Enterprises announced that the public and
ID: 2772968 • Letter: P
Question
Problem 7-1
On November 14, Thorogood Enterprises announced that the public and acrimonious battle with its current CEO had been resolved. Under the terms of the deal, the CEO would step down from his position immediately. In exchange, he was given a generous severance package. Given the information below, calculate the cumulative abnormal return (CAR) around this announcement. Assume the company has an expected return equal to the market return. (Negative values should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 1 decimal place.)
On November 14, Thorogood Enterprises announced that the public and acrimonious battle with its current CEO had been resolved. Under the terms of the deal, the CEO would step down from his position immediately. In exchange, he was given a generous severance package. Given the information below, calculate the cumulative abnormal return (CAR) around this announcement. Assume the company has an expected return equal to the market return. (Negative values should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 1 decimal place.)
Explanation / Answer
Solution:
Cumulative abmornal return for any period is equal to sum of daily abnormal returns for all preceeding periods
Days from announcement Market return (%) (a) Company return (%) (b) Daily abnormal return (%) (b-a) Cumulative abnormal return (%) -5 1.6 1.2 -0.4 -0.4 -4 1.4 1.2 -0.2 -0.6 -3 -1.3 -0.1 1.2 0.6 -2 -0.6 -0.3 0.3 0.9 -1 2.4 1 -1.4 -0.5 0 -1.2 2.9 4.1 3.6 1 0.1 0.1 0.0 3.6 2 0.9 1.8 0.9 4.5 3 1.3 0.7 -0.6 3.9 4 -1.3 0 1.3 5.2 5 1.4 0.2 -1.2 4.0