11.00 points Kathy Myers frequently purchases stocks and bonds, but she is uncer

Question

11.00 points Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to determine the rate of retun that she is eaming. For example, three years ago she paid $27,500 for 250 shares of Malti Company's common stock. She received a $213 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 $41,000. Kathy would like to eam a return of at least 17% on all of her investments. She is not sure whether the Malti Company stock provided a 17% return and would like some help with the necessary computations (Ignore income taxes ) Click here to view Exhibit 138-1 and Exhibit 13B.2, to determine the appropriate discount factorfs) using tables Required: a Determine the net present value. (Any cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places and final answers to the nearest whole dollar.) Purchase of stock Annual cash dividend Sale of stock Total cash flows Discount factor Present value Net present value b Did Kathy Myers earn 17% return on her investment?

Explanation / Answer

a) Now 1 2 3 Purchase of Stock -27500 0 0 0 Annual Cash Dividend 0 213 213 213 Sale of Stock 0 0 0 41000 Total Cash Flow -27500 213 213 41213 Discount Factor 1 0.855 0.731 0.624 Present Value -27500 182 156 25717 Net Present Value -1445 b) Did Kathy Myers Earn 17% return on her investment? No

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