Linda Clark received $212,000 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 $105,000. The stock paid no dividends, but it was sold for $155,000 at the end of three years.

b. Preferred stock was purchased at its par value of $40,000. The stock paid a 8% dividend (based on par value) each year for three years. At the end of three years, the stock was sold for $27,000.

c. Bonds were purchased at a cost of $67,000. The bonds paid annual interest of $1,000. After three years, the bonds were sold for $69,000.

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 8% return, and he gave Linda the following computations to support his statement:

Common stock:
Gain on sale ($155,000 $105,000)	$	50,000
Preferred stock:
Dividends paid (8% $40,000 3 years)		9,600
Loss on sale ($27,000 $40,000)		(13,000	)
Bonds:
Interest paid ($1,000 3 years)		3,000
Gain on sale ($69,000 $67,000)		2,000
Net gain on all investments	$	51,600

$51,600 3 years	= 8.10%
$212,000

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.

Required:

1-a. Using a 8% discount rate, compute the net present value of each of the three investments.

1-b. On which investment(s) did Linda earn a 8% rate of return?

2. Considering all three investments together, did Linda earn a 8% rate of return?

3. Linda wants to use the $251,000 proceeds ($155,000 + $27,000 + $69,000 = $251,000) from sale of the securities to open a retail store under a 10-year franchise contract. What minimum annual net cash inflow must the store generate for Linda to earn a 6% return over the 10-year period?

Using a 8% discount rate, compute the net present value of each of the three investments. (Enter negative amounts with a minus sign. Round computations to the nearest whole dollar.)

	Net Present Value
Common stock
Preferred stock
Bonds

• Linda wants to use the $251,000 proceeds ($155,000 + $27,000 + $69,000 = $251,000) from sale of the securities to open a retail store under a 10-year franchise contract. What minimum annual net cash inflow must the store generate for Linda to earn a 6% return over the 10-year period? (Round your answer to the nearest whole dollar.)

  Minimum annual net cash inflow