Linda Clark received $160,000 from her mothers estate She placed the funds into the hands of a broker, who purchased the following securities on Lindas behalf a Common stock was purchased at a cost of $96,000 The stock paid no dividends, but it was sold for $170,000 at the end of three years b Preferred stock was purchased at its par value of $48,000 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 $34,000 c Bonds were purchased at a cost of $75,000 The bonds paid annual interest of $4,500 After three years, the bonds were sold for $77,000 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 16 return, and he gave Linda the following computations to support his statement Common stock Gain on sale ($170,000 $96,000) $ 74,000 Preferred stock Dividends paid (6 $48,000 3 years) 8,640 Loss on sale ($34,000 $48,000) (14,000) Bonds Interest paid ($4,500 3 years) 13,500 Gain on sale ($77,000 $75,000) 2,000 Net gain on all investments $ 84,140 $84,140 3 years 17 5 $160,000 Click here to view Exhibit 13B 1 and Exhibit 13B 2, to determine the appropriate discount factor(s) using tables Required 1 a Using a 16 discount rate, compute the net present value of each of the three investments (Any cash outflows should be indicated by a minus sign Round discount factor(s) to 3 decimal places ) 1 b On which investment(s) did Linda earn a 16 rate of return (You may select more than one answer Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers ) Common stock Bonds Preferred stock 2 Considering all three investments together, did Linda earn a 16 rate of return Yes No 3 Linda wants to use the $281,000 proceeds ($170,000 $34,000 $77,000 $281,000) from sale of the securities to open a retail store under a 12 year franchise contract What annual net cash inflow must the store generate for Linda to earn a 10 return over the 12 year period (Round discount factor(s) to 3 decimal places )

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Linda Clark received $160,000 from her mothers estate. She placed the funds into the hands of a broker, who purchased the following securities on Lindas

Linda Clark received $160,000 from her mothers estate. She placed the funds into the hands of a broker, who purchased the following securities on Lindas behalf:

a.	Common stock was purchased at a cost of $96,000. The stock paid no dividends, but it was sold for $170,000 at the end of three years.
b.	Preferred stock was purchased at its par value of $48,000. 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 $34,000.
c.	Bonds were purchased at a cost of $75,000. The bonds paid annual interest of $4,500. After three years, the bonds were sold for $77,000.

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 16% return, and he gave Linda the following computations to support his statement:


Common stock:
Gain on sale ($170,000 $96,000)	$	74,000
Preferred stock:
Dividends paid (6% $48,000 3 years)		8,640
Loss on sale ($34,000 $48,000)		(14,000)
Bonds:
Interest paid ($4,500 3 years)		13,500
Gain on sale ($77,000 $75,000)		2,000

Net gain on all investments	$	84,140

	$84,140 3 years	= 17.5%
	$160,000	= 17.5%

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Required:
1-a.	Using a 16% discount rate, compute the net present value of each of the three investments. (Any cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.)

1-b.

On which investment(s) did Linda earn a 16% rate of return? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)

	Common stock
	Bonds
	Preferred stock

Considering all three investments together, did Linda earn a 16% rate of return?

	Yes
	No

3.	Linda wants to use the $281,000 proceeds ($170,000 + $34,000 + $77,000 = $281,000) from sale of the securities to open a retail store under a 12-year franchise contract. What annual net cash inflow must the store generate for Linda to earn a 10% return over the 12-year period? (Round discount factor(s) to 3 decimal places.)