Question
On January 2 Fred paid $18,000 for 900 shares of common stock of Acme Company. Fred received a $0.80 per share dividend on the stock
On January 2 Fred paid $18,000 for 900 shares of common stock of Acme Company. Fred received a $0.80 per share dividend on the stock at the end of each year for four years. At the end of four years, he sold the stock for $22,500. Fred has a goal of earning a minimum return of 12% on all of his investments.
a. Ignoring income taxes, did Fred earn a 12% return on the stock? Use the net present value method and show all calculations to earn full points. You should have two inflows (dividends and the sale of the stock) and one outflow (the purchase of the stock). Round the present value of each cash flow to the nearest dollar. Carry your PV factor out to three decimals. Make sure to answer the question in a sentence stating yes or no and providing a reason for your decision.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started