FIN 402 Week 1 DQ 1
likely prospect . The 1-year-old company had received some favorable press when it got early-stage financing and again when its chip was accepted by a major cell phone manufacturer . Dara also was considering an investment in 400 shares of Casinos International common stock , currently selling for $ 54 per share . After a discussion with a friend who is an economist with a major commercial bank , Dara believes that the long-running bull market is due to cool off and that economic activity will slow down . With the aid of her stockbroker , Dara researches Casinos International ’ s current financial situation and finds that the future success of the company may hinge on the outcome of pending court proceedings on the firm ’ s application to 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