John wants to invest in shares and is trying to decide between two companies (Company A and Company B) in the same industry. After doing his research he notes the following about the two companies: Measure Company A Company B Share Price $10 $15 Earnings Per Share $1 $1 Dividend $0.50 $1 PE Ratio 10 15 Dividend Yield 5% 7% Having critically examined the five measures, John decided to purchase 1.5m shares in Company B. At the time when John purchased the shares, the value of the equity shares was $3m and the par value was $0.40. Required: a. Explain how each of the measures identified by John could help him in deciding on which company’s shares to buy. b. How did the stock market help John to purchase the shares in Company B c. Calculate John’s shareholding in Company B and the cost on his investment? d.. What are the benefits John obtains by being a shareholder in Company B?

John wants to invest in shares and is trying to decide between two companies (Company A and Company B) in the same industry. After doing his research he notes the following about the two companies: Measure Company A Company B Share Price $10 $15 Earnings Per Share $1 $1 Dividend $0.50 $1 PE Ratio 10 15 Dividend Yield 5% 7% Having critically examined the five measures, John decided to purchase 1.5m shares in Company B. At the time when John purchased the shares, the value of the equity shares was $3m and the par value was $0.40. Required: a. Explain how each of the measures identified by John could help him in deciding on which company’s shares to buy. b. How did the stock market help John to purchase the shares in Company B c. Calculate John’s shareholding in Company B and the cost on his investment? d.. What are the benefits John obtains by being a shareholder in Company B?

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

ChapterC2: Spatial Technology, Inc.

Section: Chapter Questions

Problem kA

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Solve the following problem with complete solution.1. List five large publicly held companies that you know or whose products and services you enjoy. Then use the web to find the most recent closing stock price. Ignoring commissions, estimate the cost if you purchased ten shares of each of the five companies.
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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?
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In you cash account, you buy 100 shares of XYZ Corporation at a price of $10 per share. Two months later, XYZ pays a dividend $0.21 per share. You sell all 100 shares of XYZ three months later at a price of $12 per share. If you wanted to lever up the returns of this trade, you could have executed it in your _____ account. A) cash B) margin C) brokerage D) bank
In you cash account, you buy 100 shares of XYZ Corporation at a price of $10 per share. Two months later, XYZ pays a dividend $0.21 per share. You sell all 100 shares of XYZ three months later at a price of $12 per share. If you wanted to lever up the returns of this trade, you could have executed it in your _____ account. A) cash B) margin C) brokerage D) bank If you borrowed 50% of the upfront investment amount, your return (in percent terms) would have been _____. A) 11.10 B) 22.10 C) 44.20
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2. You purchase 600 shares of Jenkins 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 Watson 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?
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