1. You decide XYZ Inc. stock is overpriced at $40 and you want to sell short the stock,
(a) What is the maximum number of shares you can sell if you have $10,000 to invest and the initial margin is 50% for short sales? Show your calculation
(b) What is the first price that results in a margin call if the maintenance margin on short positions is 30%? Show your calculation
2. Find an estimate of cash flow for MSFT (Microsoft Corporation) (can use levered cash flow or EBITDA but make sure it is adjusted to be a per share calculation) and
(a) Using dividends, estimate the intrinsic value of the stock assuming a 0% growth rate for the next 2 years, a 6% growth rate in perpetuity thereafter, and a 9% discount rate
(b) Using cash flows, estimate the intrinsic value of the stock assuming a 0% growth rate for the next 2 years, a 6% growth rate in perpetuity thereafter, and a 9% discount rate