Question

Linda Clark received $223,000 from her mother's 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 $99,000. The stock paid no dividends, but it was sold for $161,000 at the end of three years. b. Preferred stock was purchased at its par value of $54,000. 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 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: Common stock: Gain on sale ($161,000 $99, 000) $ 62,000 Preferred stock: Dividends paid (6% $54,000 x 3 years) Loss on sale ($39,000- $54,000) (15,000) 9,720 Bonds: Interest paid ($1,500 x 3 years 4,500 Gain on sale ($86,000$70,000) 16,000 $ 77,220 Net gain on all investments $77,220 + 3 ears 11.50 % $223,000 Click here to view Exhibit 138-1 and Exhibit 138-2, 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 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 $286,000 proceeds ($161,000$39,000$86,000- $286,000) 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. Req 1A Req 1BReq 2 Req 3 Linda wants to use the $286,000 proceeds ($161,000 + $39,000 $86,000 $286,000) 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? (Round your answer to the nearest whole dollar.) Show less inimum annual net cash Req 3 Req 2 Linda Clark received $223,000 from her mother's 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 $99,000. The stock paid no dividends, but it was sold for $161,000 at the end of three years. b. Preferred stock was purchased at its par value of $54,000. 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. 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: Common stock: Gain on sale ($161,000 $99,000) $ 62,000 Preferred stock: Dividends paid (6% x $54,000 x 3 years) Loss on sale ($39,000 - $54,000) (15,000) 9,720 Bonds: Interest paid ($1,500 x 3 years 4,500 Gain on sale (S86,000 $70,000) 16,000 $ 77,220 Net gain on all investments $77,220 +3 ears 11.50 % $223,000 Click here to view Exhibit 138-1 and Exhibit 138-2, 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 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 $286,000 proceeds ($161,000 $39,000$86,000 $286,000) 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. 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 value Common stock Preferred stock Bonds

Answer 1