Task1. You are bullish on Telecom stock. The current market price is $80 per share, and you have $16,000 of your own to invest. You borrow the additional $16,000 from your broker at the interest rate of 7% per year and invest $32,000 in stock.
problem1. What will be your rate of return when the price of Telecom stock goes down by 5% during the next year?
problem2. How far does the price of Telecom stock have to fall for you to acquire a margin call if the maintenance margin is 30%? Assume the price fall happens instantly.
Task2. The table below contains data on Fincorp, Inc., the balance sheet items correspond to values at year-end of 2010 and 2011, while the income statement items correspond to revenues or expenses throughout the year ending in either 2010 or 2011. All values are in thousands of dollars.
2010 2011
Revenue $3,000 $3,100
Cost of goods sold 1,100 1,200
Depreciation 400 420
Inventories 400 550
Administrative expenses 400 450
Interest expense 50 50
Federal and state taxes* 300 320
Accounts payable 400 550
Accounts receivable 520 650
Net fixed assets† 4,000 4,700
Long-term debt 1,000 1,400
Notes payable 1,100 800
Dividends paid 210 210
Cash and marketable securities 700 200
- Taxes are paid in their entirety in the year that the tax obligation is acquired.
- Net fixed assets are fixed assets net of accrued depreciation since the asset was installed.
Quesiton1. Suppose that Fincorp has 500,000 shares outstanding. What were earnings per share?