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On January 2, Fred Critchfield paid $10,500 for 1,000 shares of the common stock of Acme Company. Mr. Critchfield received an $0.86 per share dividend on the stock at the end of each year for seven years. At the end of seven years, he sold the stock for $24,000. Mr. Critchfield has a goal of earning a minimum return of 13% on all of his investments. (Ignore income taxes.)

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

Required:

a. Determine the net present value. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answer to the nearest whole dollar.)

b. Did Mr. Critchfield earn a 13% return on the stock?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M946021

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