Exercise 13-10 Net Present Value Analysis [LO13-2) Kathy Myers frequently purcha

Question

Exercise 13-10 Net Present Value Analysis [LO13-2) 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 $33,000 for 880 shares of Malti Company's common stock. She received a $818 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 $32,000. Kathy would like to earn a return of at least 7% on all of her investments. She is not sure whether the Malti Company stock provided a 7% return and would like some help with the necessary computations. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Required 1. Compute the net present value that Kathy earned on her investment in Malti Company stock. 2. Did the Malti Company stock provide a 7% return? Complete this question by entering your answers in the tabs below Required 1Required 2 Compute the net present value that Kathy earned on her investment in Malti Company stock. (Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount.) et present value Required Required 2>

Explanation / Answer

a Year(s) Amount of Cash Flows PV factor Present Value of Cash Flows Purchase of the stock now -33000 1 -33000 Annual cash dividends 1-4 818 2.624 2146 Sale of the stock 4 32000 0.816 26112 Net present value -4742 b No

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