EBK CFIN
6th Edition
ISBN: 9781337671743
Author: BESLEY
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 5, Problem 5PROB
Summary Introduction
The rate of
The number of outstanding shares is 1,000 sold for $45 each. Two years ago, the purchase price per share is $50. The quarterly dividend is $0.50.
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Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to determine the rate ofreturn that she is earning. For example, three years ago she paid $13,000 for 200 shares of Malti Company’s common stock. She received a $420 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 $16,000. Kathy would like to earn a return of at least 14%on all of her investments. She is not sure whether the Malti Company stock provided a 14% return andwould like some help with the necessary computations.Required:(Ignore income taxes.) Using the net present value method, determine whether or not the Malti Companystock provided a 14% return. Use the general format illustrated in Exhibit 12–2 and round all computationsto the nearest whole dollar.
Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to determine the rate of return she is earning. For
example, three years ago she paid $19,000 for 930 shares of Malti Company's common stock. She received a cash dividend of $735
on the stock at the end of each year for three years. At the end of three years, she sold the stock for $22,000. Kathy would like to earn
a return of at least 17% on all of her investments. She is not sure whether the Malti Company stock provides a 17% return and would like
some help with the necessary computations.
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. Compute the net present value Kathy earned on her investment in Malti Company stock.
2. Did the Malti Company stock provide a 17% return?
Complete this question by entering your answers in the tabs below.
Required 1 Required 2
Compute the net present value Kathy earned on her investment in Malti…
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 $27,000 for 1,010 shares of Malti Company's common stock. She received a $879 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 $25,000. 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 provide a 7% return and would like some help with the necessary computations. Required: Compute the net present value that Kathy earned on her investment in Malti Company stock. Did the Malti Company stock provide a 7% return?
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