on January 2, 2014 Judy smith purchased 700 shares of New Telecommunications com
ID: 2478705 • Letter: O
Question
on January 2, 2014 Judy smith purchased 700 shares of New Telecommunications common stock at $34 per share. The company paid a $1.25 dividend per share on December 28th of that year and raised the amount by $0.25 per share for a distribution on December 28,2015. Judy sold her investment on December 30, 2015 generating a $4,000 gain on the sale of the stock.
Required:
A. prepare a dated listing of the cash inflows and outflows related to Judy's stock investment. Ignore income taxes.
B. assume that Judy has a 8% hurdle rate for all investments. Rounding to the nearest dollar, compute the net present value of her investment in New and determine whethe she achieved her 8% goal
Explanation / Answer
A) prepartion of a dated listing of the cash inflows and outflows:
B) Computation of net present value of investment:
NPV= Present value of cash inflows-Present value of cash outflows
Total cash inflows=23800+875+175+4000 = $28,850
Present value of cash inflows= 28,850*0.926 = $26715
Present value of cash outflow = 23800*1 = $23,800
NPV = $26715-$23,800
NPV =$2915
Date Inflow/Outflow Particulars Amount 2/1/2014 outflow Purchase of 700 shares @ $34 per share 700*34=23,800 28/12/2014 inflow Dividend received on 700 shares @ $1.25 per share 700*1.25=$875 28/12/2014 inflow amount raised on 700 shares @ $0.25 per share 700*0.25=$175 30/12/2014 inflow sale of the stock & gain earned $4000Related Questions
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