9. The group company markets two shares for two different companies at a price of $50per share, one of the two shares is undervalued by $5 and the other is overvalued by $1,but you have no way of knowing which of the two shares is overvalued and which of thetwo shares is undervalued the Actual. You plan to buy 2,000 shares of each issue. If theissue is priced below the actual price, it would make sense that only half of the requiredstock would be sold out. If you were able to buy 2,000 shares of each company whatwould your profit be? And what profit did you actually expect? What is the principle thatyou Explain it

In a situation where the number of shares which can be bought is uncertain due to any reason like…

Answered: 9. The group company markets two shares…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 3PROB

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35. Edwin, an investor, identifies an arbitraging opportunity on the shares of Tristan Group [buying in market A and selling in market B] and he can afford to trade 1,000 shares. The price levels and the transaction costs are as follows: Market A $35.00 per share Market B $35.50 per share Commission charges + Other Costs $25.00 per batch of 100 shares Based solely on the information given, which of the following observations is most likely true of the market? a. The market is highly inefficient because the investor can earn $500 by arbitraging. b. The market is inefficient because the investor can earn a profit by arbitraging. c. The market is efficient within the bounds of arbitrage as the investor can earn only $250 by arbitraging. d. It cannot be determined from the data given whether the market is efficient or inefficient. e. The market is efficient because the investor cannot earn a profit by arbitraging.
The Woods Co. and the Mickelson Co. have both announced IPOs at $53 per share. One of these is undervalued by $11, and the other is overvalued by $2, but you have no way of knowing which is which. You plan to buy 800 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. If you could get 800 shares in Woods and 800 shares in Mickelson, what would your profit be? (Do not round intermediate calculations.) I found the price of an ideal situaiton but am not sure how to distribute numbers in the expected profit situation
Assume that you own 2,100 shares of $6 par value common stock and the company has a 3-for-1 stock split when the market price per share is $72. What will probably happen to the market price per share of the stock and the par value per share of the stock? Multiple Choice A. Market price per share will be about $216 per share, and par value will be $2 per share B. Market price per share will be about $216 per share, and par value will be $18 per share C. Market price per share will be about $24 per share, and par value will be $2 per share D. Market price per share will be about $24 per share, and par value will be $18 per share
1.) You purchase 600 shares of XYZ Corporation at $30 per share using an initial margin of 70%. The stock is now selling for $41 per share and you want to use the excess equity in your account to pyramid. You want to purchase 400 shares of JT Corporation at $122 per share. If the minimum initial margin is 60%, what is the minimum amount of equity that you will have to put up in this transaction? 2. You purchase 500 shares of Johns Incorporated at $50 per share using an initial margin of 60%. Your maintenance margin is 25% and the minimum initial margin is 50%. A. How low can the stock price fall before you receive a margin call? B. If the stock price falls to $21 a share, how much additional equity must you add to your account?
Damron, Incorporated, has 205,000 shares of stock outstanding. Each share is worth $79, so the company’s market value of equity is $16,195,000. Suppose the firm issues 44,000 new shares at the following prices: $79, $73, and $67. What will be the ex-rights price and the effect of each of these alternative offering prices on the existing price per share?
The Peter Corp. and the Sellers Company have both announced IPOs. You place an order for 950 shares of each IPO. One of the IPOs is underpriced by $14.00 and the other is overpriced by $6.75. If you could get all of the shares you ordered for each IPO, what would your profit be?
Foster Enterprises' stock is trading for $40 per share and there are currently 19 million shares outstanding. It would like to raise $95 million. Assume its underwriter charges 8% of gross proceeds. a. How many shares must it sell? b. If it expects the stock price to drop by 1% upon announcement of the SEO, how many shares should it plan to sell? c. If all of the shares are primary shares and are sold to new investors, what percentage reduction in ownership will all of the existing shareholders experience?
Simmons Mineral Operations, Inc., (SMO) currently has 430,000 shares of stock outstanding that sell for $50 per share. Assuming no market imperfections or tax effects exist, what will the share price be after: a. SMO has a four-for-three stock split? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) New share price $ b. SMO has a 10 percent stock dividend? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) New share price $ c. SMO has a 43.5 percent stock dividend? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) New share price $ d. SMO has a three-for-seven reverse stock split? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) New share price $ e. Determine the new number of shares outstanding in parts…
#2: XYZ Corporation is evaluating an extra dividend versus a share repurchase. In either case, $14,500 would be spent. Current earnings are $1.65 per share, and the stock currently sells for $58 per share. There are 2,000 shares outstanding. a) Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth per share. b) What will the company's EPS and P/E ratio be under the two different scenarios?
Mr. Handsome is interested in the UGLY stock. He finds that the price should be $3, but the market price is $5 per share now. Mr. Handsome has $2,000 in his margin account. The initial margin requirement is 40%, and the maintenance margin is 30%. Assume there are no interests and service charges. Mr. Handsome covers his short position at $4 and deposits all proceeds to his margin account. But he still thinks the price will decrease to $3. So he short again as many shares as possible. After this transaction, Company UGLY receives a great donation. So its stock price increases to $5. Mr. Handsome has to cover his short position. Then how much is left in his margin account? More than or less than his initial funds? Can you provide any intuition for your answer?
2- Sunshine Corporation is contemplating issuance of a 10% preferred stock that they expect to sell for $87 per share. The cost of issuing and selling the stock will be $5 per share. Compute the cost of this stock?
The Bellevue firm will issue preferred stock with flotation costs of 4%. If the shares will sell for $40 and pay dividends of $2.5 the firm’s cost of preferred as a percent to two places will be:

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