Hbs Case: Strategic Capital Management, Llc
Autor: You Hyun Choi • September 20, 2015 • Course Note • 257 Words (2 Pages) • 4,364 Views
HBS Case: Strategic Capital Management, LLC
Q1. What is the current stock market valuation of Creative Computers and of Ubid based on the stock prices as of December 9?
Stock market valuation equals to stock price times shares outstanding
Creative Computers 22.75$ * 10,238,703 shares outstanding = $ 232,930,493.25
Ubid 35.6875$ * 9,146,883 shares outstanding =$ 326,429,387.063
Q2. Calculate the market value of Ubid shares owned by Creative Computers as of December 9.
Owns 80%
Total market value of Ubid shares * 0.8 = $ 326,429,387.063*0.8 = $261,143,509.65
Q3. Given your answers to Q1 and Q2, can you conclude that the prices of Creative Computers and Ubid are not consistent with the arbitrage principle? Why or why not?
Q4. Suppose you purchased 1000 shares of Creative Computers at the December 9 closing price, using the maximum leverage allowed, i.e., borrowing as much as you can from your broker. Suppose further that the price of Creative Computers went up to $28.88 after one month. The broker charges 1% interest per month on margin loan. If you sell 1000 shares and pay back the broker the principal loan plus the interest, what is the rate of return on your investment?
Closing price: $22.75 , Maximum leverage allowed: 50%
Rate of stock price change : (28.88-22.75)/ 22.75 * 100 = 26.95%
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