On January 2, Fred Critchfield paid $12,000 for 820 shares of the common stock o

ID: 2376092 • Letter: O

Question

On January 2, Fred Critchfield paid $12,000 for 820 shares of the common stock of Acme Company. Mr. Critchfield received an $0.71 per share dividend on the stock at the end of each year for five years. At the end of five years, he sold the stock for $21,000. Mr. Critchfield has a goal of earning a minimum return of 10% on all of his investments. (Ignore income taxes.)

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.)

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

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Net Present Value = -12000 + 820*.71*PVIFA(10%,5) + 21000*PVIF(10%,5)

= -12000 + 820*.71*3.791 + 21000*.621 = 3248

Answer is 3248.12

Part B

Yes.

Thanks.

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On January 2, Fred Critchfield paid $12,000 for 820 shares of the common stock o

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On January 2, Fred Critchfield paid $12,000 for 820 shares of the common stock o

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