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?

Exercise 13-8 Payback Period and Simple Rate of Return [LO13-1, LO13-6]

[The following information applies to the questions displayed below.]

Nicks Novelties, Inc., is considering the purchase of new electronic games to place in its amusement houses. The games would cost a total of $475,000, have a fifteen-year useful life, and have a total salvage value of $47,500. The company estimates that annual revenues and expenses associated with the games would be as follows:

Revenues				$	240,000
Less operating expenses:
Commissions to amusement houses	$	70,000
Insurance		45,000
Depreciation		28,500
Maintenance		30,000			173,500
Net operating income				$	66,500

Garrison 16e Rechecks 2017-05-22

Exercise 13-8 Part 1

Required:

1a. Compute the payback period associated with the new electronic games.

1b. Assume that Nicks Novelties, Inc., will not purchase new games unless they provide a payback period of five years or less. Would the company purchase the new games?