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open a new floating casino on a nearby river. If the permit is granted, it
seems likely that the firm’s stock will experience a rapid increase in
value, regardless of economic conditions. On the other hand, if the
company fails to get the permit, the falling stock price will make it a
good candidate for a short sale.
Dara felt that the following alternatives were open to her:
·
Alternative 1: Invest $20,000 in NewestHighTech.com when it
goes public.
·
Alternative 2: Buy Casinos International now at $54 per share
and follow the company closely.
·
Alternative 3: Sell Casinos short at $54 in anticipation that the
company’s fortunes will change for the worse.
·
Alternative 4: Wait to see what happens with the casino permit
and then decide whether to buy or short sell the Casinos International
stock.
Questions
a.
Evaluate each of these alternatives. On the basis of the
limited information presented, recommend the one you feel is best.
b.
If Casinos International’s stock price rises to $60, what will
happen under alternatives 2 and 3? Evaluate the pros and cons of
these outcomes.
c.
If the stock price drops to $45, what will happen under
alternatives 2 and 3? Evaluate the pros and cons of these outcomes.
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FIN 402 Week 1 DQ 1
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