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 $23,000 for 970 shares of Malti Company’s common stock. She received a $805 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 $21,000. Kathy would like to earn a return of at least 10% on all of her investments. She is not sure whether the Malti Company stock provided a 10% 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 10% return?

Answer 1

Note

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