USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 78

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You decide to sell short 200 shares of XCorp stock at a price of $75. Your margin deposit is 65 percent. Commission on the sale is 1.25 percent. While you are short, the stock pays a $1.75 per share dividend. Interest on margin debt is 5.25 percent per year.
-Refer to Exhibit 3.6. Suppose at the end of one year XCorp is selling at $90 per share and you cover your short position at this price. What is your rate of return on the investment? (Assume a 1.25 percent commission on the purchase.)

• A) -40.64 percent
• B) -25.53 percent
• C) 5.21 percent
• D) 72.7 percent
• E) -71.2 percent

Apply the constant-growth dividend discount model (DDM) appropriately.

Understand the concepts of book value, liquidation value, market value, and Tobin's q.

Recognize the factors that influence the valuation of Internet companies.

Understand the relationship between earnings yields, Treasury yields, and stock valuations.

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Definitions:

Investment Capital

Funds allocated by investors to purchase shares, assets, or property with the expectation of achieving a profit or receiving future financial returns.

Central Issues

Fundamental problems or primary topics of concern within a certain context.

Obtaining Investment

The process of securing funds from investors or financial institutions to start or grow a business.

Mezzanine Financing

A blend of equity and debt financing that gives the lender the right to convert to an equity interest in the company in case of default, typically used in the expansion of established companies.