On January 2, Fred Critchfield paid $15,500 for 890 shares of the common stock o

Question

On January 2, Fred Critchfield paid $15,500 for 890 shares of the common stock of Acme Company. Mr. Critchfield received an $0.94 per share dividend on the stock at the end of each year for three years. At the end of three years, he sold the stock for $31,000. Mr. Critchfield has a goal of earning a minimum return of 13% on all of his investments. (Ignore income taxes.)

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

Required:

a.

Determine the net present value. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answer to the nearest whole dollar.)

Net present value $   

Explanation / Answer

Hi,

Hi,

Kindly ignore my previous answer. It contains a typo error. Please find the correct answer as follows:

Dividend each year = 890*.94 = 836.6

NPV = - 15500 +836.6/(1+.13)^1 + 836.6/(1+.13)^2 + 836.6/(1+.13)^3 + 31000/(1+.13)^3 = 7959.89 or 7960

NPV = 7960

Thanks.

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