You are considering purchasing 100 shares of stock in Big Money Company. You exp

Question

You are considering purchasing 100 shares of stock in Big Money Company. You expect the stock to pay annual dividends of $970 at the end of each year, and to be worth $85,000 at the end of ten years, when you plan to sell the stock. The investment costs $43,000 and you need an annual return of 7.3%. What is the net present value of this investment? Note: This is a standard net present value problem.

Cash Flow Worksheet

Present Value

Net Present Value

Based on your calculations, will the total return on the investment be at least 7.3%?

Circle one:   Yes       No

Cash Flow Worksheet

Present Value

Net Present Value

Explanation / Answer

Present value of cash flow = (PVAF@7.3%,10 *dividend) +(PVF@7.3%,10 *Sale value)

                                                 = (6.92721 *970 )   + (.49431 *85000)

                                                  = 6719.39+ 42016.35

                                                  = $ 48735.74

NPV =Present value -Initial investment

            = 48735.74 - 43000

            = $ 5735.74

b)NO.It exceeds the return of 7.3%

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