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    after-tax cash flows

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    Engineering economy questions. I need to know what formulas I need to use in order to solve the problems as well as how to solve the problems

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    see the attached file. Thanks

    1. An investor purchased 1000 shares of Omega common stock for $15,000. He held the stock for ten years. For the first four years he received annual end-of-year dividends of $1,200. For the next four years he received annual dividends of $1,500. He received $2,000 dividend for the last two years. At the end of the tenth year he sold his stock for $20,000. What rate of return did he receive on his investment? (Try 12%)
    First write the cash flows associated with the investment
    Year Cash Flow
    0 -15000
    1 1200
    2 1200
    3 1200
    4 1200
    5 1500
    6 1500
    7 1500
    8 1500
    9 2000
    10 22000 Note: Dividend plus selling price

    Now the easiest way to calculate the rate of return is use the IRR function in Excel.
    IRR 11.32%

    If you are not using IRR then you have to calculate the return by hit and trial method. You have a hint to use 12%, so at 12% calculate the NPV of the investment. If it is greater than 0, increase the discount rate, else decrease the discount rate. We repeat the same till be reach a point where NPV is zero. I am illustrating the process below.
    Discount Rate 12%
    Year Cash Flow Discount Factor Discounted ...

    Solution Summary

    The after-tax cash flows are calculated.