(Ignore income taxes in this problem.) Two years ago Leroy paid £8,000 for 100 shares of common stock in the Uptown Company. He obtained a cash dividend of £300 at the end of each year for the next two years. At the end of the second year he sold the stock for £9,000 in cash. Using a discount rate of 12%, what is the net present value of Leroy's investment

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the cash flows received from the investment at the given discount rate and subtracting the initial investment. The cash flows are £300 at the end of year 1, £300 at the end of year 2, and £9,000 at the end of year 2. The NPV is calculated as follows: NPV = (£300 / (1+0.12)^1) + (£300 / (1+0.12)^2) + (£9,000 / (1+0.12)^2) - £8,000 = £(320).

(Ignore Income Taxes in This Problem