You Sell Short 300 Shares of Microsoft Which Are Currently

question 28

Multiple Choice

You sell short 300 shares of Microsoft which are currently selling at $30 per share.You post the 50% margin required on the short sale.If you earn no interest on the funds in your margin account what will be your rate of return after one year if Microsoft is selling at $27? (Ignore any dividends)

• A) 10.00%
• B) 20.00%
• C) 6.67%
• D) 15%

---

Definitions:

DCF Approach

The Discounted Cash Flow (DCF) approach is a valuation method used to estimate the value of an investment based on its expected future cash flows, adjusted for the time value of money.

Cost of Equity

The return a company theoretically pays to its equity investors to compensate them for the risk of investing in the company's stock.

Retained Earnings

The portion of net income not distributed as dividends but retained by the company to reinvest in its core business or to pay debt.

Calculating WACC

Determining the Weighted Average Cost of Capital, a measure of a firm's cost of capital in which each category of capital is proportionately weighted.