Linda Clark received $245,000 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 $130,000. The stock paid no dividends, but it was sold for $220,000 at the end of three years.

b. Preferred stock was purchased at its par value of $44,000. 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 $30,000.

c. Bonds were purchased at a cost of $71,000. The bonds paid annual interest of $3,500. After three years, the bonds were sold for $73,000.

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 13% return, and he gave Linda the following computations to support his statement:

Common stock:
Gain on sale ($220,000 $130,000)	$ 90,000
Preferred stock:
Dividends paid (6% $44,000 3 years)	7,920
Loss on sale ($30,000 $44,000)	(14,000)
Bonds:
Interest paid ($3,500 3 years)	10,500
Gain on sale ($73,000 $71,000)	2,000
Net gain on all investments	$ 96,420

($96,420 3 years) $245,000 = 13.12%

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 13% discount rate, compute the net present value of each of the three investments.

1-b. On which investment(s) did Linda earn a 13% rate of return?

2. Considering all three investments together, did Linda earn a 13% rate of return?

3. Linda wants to use the $323,000 proceeds ($220,000 + $30,000 + $73,000 = $323,000) from sale of the securities to open a retail store under a 8-year franchise contract. What minimum annual net cash inflow must the store generate for Linda to earn a 11% return over the 8-year period?