Exercise 11-8 Basic Net Present Value Analysls LO11-2] Modilfned Kathy Myers fre
ID: 2407083 • Letter: E
Question
Exercise 11-8 Basic Net Present Value Analysls LO11-2] Modilfned Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to determine the rate of return that she is earning. For example, three years ago she paid $13,000 for 200 shares of Malti Company's common stock. She received a $420 cash dividend on the stock at the end of each year for three years. At the end of three years, she sold the stock for $16,000. Kathy would like to earn a return of at least 14% on all of her investments. She is not sure whether the Malti Company stock provided a 14% return and would like some help with the necessary computations. (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. (Any cash outflows should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s). Round present value of cash flows and final net present value answers to the nearest wh ole dollar. When you enter a factor, use a whole number followed by 3 decimal places, for example: 0.123.) Years)Cash Flow 149% PV Year(s) Cash Flow Factor of Cash Flows of stock 1.000 Annual cash dividend Sale of stock Net present value 1-3 (1.225)Explanation / Answer
ANSWER:
Particulars
Year(s)
Cash Flow
14% PV Factor
Present Value of Cash Flows
Purchase of stock
Now
-13000
1
-13000
Annual cash dividend
1-3
420
2.322
975
Sale of stock
3
16000
0.675
10800
Net present value
-1225
Particulars
Year(s)
Cash Flow
14% PV Factor
Present Value of Cash Flows
Purchase of stock
Now
-13000
1
-13000
Annual cash dividend
1-3
420
2.322
975
Sale of stock
3
16000
0.675
10800
Net present value
-1225
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.