Answer the following questions using the information presented in class and available in the textbook. Each answer is to be hand written/calculated, but you may use Excel to check your answers.
When completing the exam, each answer shall include the following:
- A statement identifying the engineering economics method and decision criteria used in determining the answer
- Cash Flow Diagrams for each component of the question/answer
- The formula(s) used for each calculation – e.g., P = F / (1 + i)N (after the set of formulas for each problem have been identified, “interest factors” can be used to simplify the calculations and avoid errors)
- A proper statement defining the use of the factors found in Appendix B “Interest Factors for Discrete Compounding” – e.g., Present Worth of a Future Amount at 8% annually for 25 years should be written as: “(P/F, 8%, 25) = 0.1460” prior to its use in a calculation
- A concluding statement answering the ultimate question
Note: Points will be awarded for each answer element “a” through “e”.
On March 13, 1986, Microsoft issued over 3 million shares at an issue price of $21 per share. By doing so, it raised $61 million during its Initial Public Offering (I.P.O.). Now, its market capitalization exceeds $1.94 trillion and its stock recently closed at approximately $260 per share. Since going public, Microsoft stock has split nine (9) times and began paying a dividend in 2003. The specifics of each split and annual dividend are identified below:
Stock Splits Dividend Schedule 2012 $0.83 per share 09/1987 2:1. 2003 $0.24 per share 2013 $0.97 per share
04/1990 2:1 2004 $3.16 per share 2014 $1.15 per share
06/1991 3:2 2005 $0.32 per share 2015 $1.29 per share
06/1992 3:2 2006 $0.28 per share 2016 $1.47 per share
05/1994 2:1 2007 $0.14 per share 2017 $1.56 per share
12/1996 2:1 2008 $0.24 per share 2018 $1.68 per share
02/1998 2:1 2009 $0.52 per share 2019 $1.84 per share
03/1999 2:1 2010 $0.55 per share 2020 $2.04 per share
02/2003 2:1 2011 $0.68 per share 2021 $2.24 per share
Note about Stock Splits: That is, two shares in exchange for one share as represented by the nomenclature 2:1 and three shares in exchange for two shares as represented by 3:2.
During this period, the 30-year U.S. Treasury Bill interest rate averaged approximately 6%.
Considering all years as full years, and that dividends paid are a part of the return of a stock, determine the TOTAL PROJECTED Rate of Return for a 100 share investment in Microsoft at the hypothetical sale/disposal of all shares at the end of 2021.