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Darina [25.2K]
2 years ago
8

You’ve borrowed $23,072 on margin to buy shares in Ixnay, which is now selling at $41.2 per share. You invest 1,120 shares. Your

account starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock price changes to $41 per share.
a) Will you receive a margin call?b) How low can the price of Disney shares fall before you receive a margin call?
Business
1 answer:
BlackZzzverrR [31]2 years ago
7 0

Answer:

(a) Since the percentage margin is more than maintenance margin, there would be no call

(b) A margin call would be received when the price is $15.26

Explanation:

(a) Total investment = $23,072 × \frac{100}{50} = $46,144

Total shares = Total investment ÷ share price

= $46,144 ÷ $41.2 = 1,120

Value of share in market = new price × number of shares

= $41 × 1,120

= $45,920

Value of equity = Value of share in the market - borrowed cash

= $45,920 - $23,072

= $22,848

Percentage margin = Value of equity ÷ Value of shares

= ($22,848 ÷ $45,920) × 100%

= 49.76%

(b) Total number of shares = 1,120

Assumed value of shares = $1,120X

Borrowed fund = $23,072

Value of equity = $1,120X - $23,072

Margin = Value of equity ÷ Value of shares

0.35 = ($1,120X - $23,072) ÷ $1,120X

392X = $1,120X - $23,072

1512X = $23,072

X = $15.26

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Differential Analysis for Further Processing
ArbitrLikvidat [17]

Answer:

Dominican Sugar Company

1. Differential Analysis as of March 24:

                                          Raw Sugar       Refined Sugar

                                        Alternative 1       Alternative 2       Difference

Sales volume                        42,000            33,600

Selling price per pound          $1.40              $2.20

Sales revenue                   $58,800          $73,920                 $15,120

Materials requirement      100,000            42,000

Output from process         42,000            33,600

Unit cost                               $0.35              

Cost of materials            $35,000          $35,000

Cost of further refining                           $21,000

Total costs                      $35,000          $56,000                ($21,000)

Net income                     $23,800           $17,920                  ($5,880)

2. Based on cost implications, Dominican Sugar should not refine the raw sugar further.  Further refining will cause the company $5,880 in lost income.  This means that it costs more to refine the raw sugar.

Explanation:

a) Data and Calculations:

                                          Raw Sugar       Refined Sugar

                                        Alternative 1       Alternative 2

Sales volume                        42,000            33,600 (42,000/1.25)

Selling price per pound          $1.40              $2.20

Sales revenue                   $58,800          $73,920

Materials requirement      100,000            42,000

Output from process         42,000            33,600 (42,000/1.25)

Unit cost                               $0.35              

Cost of materials            $35,000          $35,000

Cost of further refining                           $21,000 (42,000 * $0.50)

Total costs                      $35,000          $56,000

Net income                     $23,800           $17,920

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Answer:

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