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 $18,000 for 800 shares of Malti Companys common stock. She received a $560 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 $20,000. 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?

1. Net present value=