Linda Clark received $221,000 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 $98,000. The stock paid no dividends, but it was sold for $160,000 at the end of three years.

b. Preferred stock was purchased at its par value of $53,000. 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 $39,000.

c. Bonds were purchased at a cost of $70,000. The bonds paid annual interest of $1,500. After three years, the bonds were sold for $86,000.

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 11% return, and he gave Linda the following computations to support his statement:

Common stock:
Gain on sale ($160,000 $98,000)	$ 62,000
Preferred stock:
Dividends paid (6% $53,000 3 years)	9,540
Loss on sale ($39,000 $53,000)	(14,000)
Bonds:
Interest paid ($1,500 3 years)	4,500
Gain on sale ($86,000 $70,000)	16,000
Net gain on all investments	$ 78,040

$78,040 3 years/$221,000 = 11.80 %

Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.

Required:

1-a. Using a 11% discount rate, compute the net present value of each of the three investments.

1-b. On which investment(s) did Linda earn a 11% rate of return?

2. Considering all three investments together, did Linda earn a 11% rate of return?

3. Linda wants to use the $285,000 proceeds ($160,000 + $39,000 + $86,000 = $285,000) from sale of the securities to open a retail store under a 11-year franchise contract. What minimum annual net cash inflow must the store generate for Linda to earn a 10% return over the 11-year period?