Question

Check my work 2 Linda Clark received $221,000 from her mothers estate. She placed the funds into the hands of a broker, who purchased the following securities on Linda's behalf a. Common stock was purchased at a cost of $98,000. The stock paid no dividends, but it was sold for $160,000 at the end of three years. b. Preferred stock was purchased at its par value of $53,000. The stock paid a 6% dividend (based on par value) each year for three years. At the end of three years, the stock was sold for $39,000. c. Bonds were purchased at a cost of $70,000. The bonds paid annual interest of $1,500. After three years, the bonds were sold for $86,000. 6 points eBoo k The securities were all sold at the end of three years so that Linda would have funds available to open a new business venture. The broker stated that the investments had earned more than a 11% return, and he gave Linda the following computations to support his statement Print Common stockı $ 62,000 Cain on sale ($160,000-$98,000) Preferred stock References Dividends paid (6 $53,000 x 3 years) Loss on sale ($39,000-$53,000) 9 540 (14-000) Bonds i 4,500 16/000 s 78,040 Interest paid ($1,500 × 3 years) Gain on sale ($86,000-$70,000) Net gain on all investments $78,040 + 3 years. -11.00 8221,000 Click here to view Exhibit 13B-1 and Exhibit 138-2. to determine the appropriate discount factorís) using tables Required: 1.a. Using a 11% discount rate, compute]he net present value of each of the three investments. 1-b. On which investment(s) did Linda earn a 11% rate of return? 2. Considering all three investments together, did Linda earn a 11% rate of return? 3. Linda wants to use the $285,000 proceeds ($160,000 $39,000 $86,000- $285,000) from sale of the securities to open a retail store under a 11 year franchise contract. What minimum annual net cash inflow must the store generate for Linda to earn a 10% return over the 11-year period? Complete this question by entering your answers in the tabs below. Check my work 2 $78,040 +3 yeare .11.8 8-0639 1.00ea -I.60. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Required 1-a Using a 11% discount rate, compute the net present value of each of the three investments. 1-b on which investments) did Linda earn a 11% rate of return? points 2. Considering all three investments together, did Linda earn a 11% rate of return? 3. Linda wants to use the $285,000 proceeds ($160,000 + $39,000 + $86,000 = $285,000) from sale of the securities to open a retail store under a 11-year franchise contract. What minimum annual net cash inflow must the store generate for Linda to earn a 10% return over the 11-year period? eBook Print Complete this question by entering your answers in the tabs below. References Req 1A Req 18 Req 2 Req 3 Using a 11% discount rate, compute the net present value of each of the three investments. (Enter negative amounts with a minus sign. Round computations to the nearest whole dollar.) Net present Common stock Preferred stock Bonds Req 18 Check my work Gain on sale ($86,000 $70,000) Net gain on all investments b,000 78,040 Goms 478 031, 0 $221,000 points Click here to view Exhibit 138-1 and Exhiblt 138-2, to determine the appropriate discount factorís) using tables Required 1-a. Using a 11% discount rate, compute the net present value of each of the three investments. 1-b. On which investment(s) did Linda earn a 11% rate of return? eBook 2. Considering all three investments together, did Linda earn a 11% rte of return? 3. Linda wants to use the $285,000 proceeds ($160,000+$39,000+$86,000 $285,000) from sale of the securities to open a retail store under a 11-year franchise contract. What minimum annual net cash inflow must the store generate for Linda to earn a 10% return over the 11-year period? Print References Complete this question by entering your answers in the tabs below. Req 1A Req 2 Req 18 Req 3 unda wants to use the $285,000 retail store under a 11-year franchise contract. What minimum annual net cash inflow must the store generate for Linda to earn a 10% return over the 11-year period? (Round your answer to the nearest whole dollar.) proceeds ($160,000 + $39,000+$86,000 - $285,000) from sale of the securities to open a C Req 2

Answer 1

ltem common stock Purchase of stock sale of the stock Total cash flows discount factor Present value NPV Now 98000 160000 98000 1.000 0.901 0.812 0.731 98000 18960 0 0 160000 0 0 116960 Preferred stock Purchase of stock Annual cash dividend sale of the stock Total cash flows discount factor Present value NPV 53000 31803180 3180 39000 53000 3180 3180 42180 1.000 0.901 0.812 0.731 53000 2865 2582 30834 16719 Bonds Purchase of stock Annual interest in come sale of the bonds Total cash flows discount factor Present value NPV 70000 15001500 1500 86000 70000 1500 1500 87500 1.000 0.901 0.812 0.731 70000 1352 1218 63963 3468

1b) common stock as it has positive NPV 2) total NPV-18960-16719-3468 No as total NPV is negative -1227 3) Present value (Investment) / PVA(10%,11) minimum annual net cash inflow 285,000 6.495 43,880