On January 2, Fred Critchfield paid $11,500 for 860 shares of the common stock o
ID: 2381589 • Letter: O
Question
On January 2, Fred Critchfield paid $11,500 for 860 shares of the common stock of Acme Company. Mr. Critchfield received an $0.91 per share dividend on the stock at the end of each year for seven years. At the end of seven years, he sold the stock for $35,000. Mr. Critchfield has a goal of earning a minimum return of 15% 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.)
On January 2, Fred Critchfield paid $11,500 for 860 shares of the common stock of Acme Company. Mr. Critchfield received an $0.91 per share dividend on the stock at the end of each year for seven years. At the end of seven years, he sold the stock for $35,000. Mr. Critchfield has a goal of earning a minimum return of 15% on all of his investments. (Ignore income taxes.)
On January 2, Fred Critchfield paid $11,500 for 860 shares of the common stock of Acme Company. Mr. Critchfield received an $0.91 per share dividend on the stock at the end of each year for seven years. At the end of seven years, he sold the stock for $35,000. Mr. Critchfield has a goal of earning a minimum return of 15% 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. 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.) Did Mr. Critchfield earn a 15% return on the stock?Explanation / Answer
a) Cash flows
for year 0 to year 6 => 0.91*860 = $782.6
for year 7 = > 782.6 + 35,000 = $ 35782.6
NPV = -11,500 + 782.6/1.15 + 782.6/1.15^2 +......782.6/1.15^6 + 35782.6/1.15^7
= -11,500 + 3.784*782.6 + 13452
= $ 4913.4
b) No
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