Sufficient funds in margin account to pay cash

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Reference no: EM131954045

1. Martin wanted to buy 200 shares of New Toys stock when the market price was $4 a share. The ticker symbol for New Toys is NYTS. Martin placed his order online but types in the symbol NWTS. NWTS is the ticker symbol for Newton Water Towers, Inc. which was selling for $85 a share. Martin did not realize he had made a mistake until one hour later when the NWTS stock had declined to $79 per share. Martin did not have sufficient funds in his margin account to pay cash for 200 shares of NWTS. Which of the follow is correct concerning this situation?

a. Martin bought 200 shares of Newton Water Towers at $85 per share.;

b. Martin can call his online broker and explain his error. They will correct his mistake at no cost to him.;

c. Since Martin did not have sufficient funds in his margin account to pay the entire cost of 200 share of NWTS, the trade never executed.

d. Martin can sell his NWTS at a price equal to his cost since this was an innocent error.

2. A firm will make a cash outlay of $125,000 for a piece of equipment. Assume the firm has no other expenses or revenues other than those associated with this project. The firm is going to purchase an additional $7,500 of inventory for production with the new equipment and set up a cash account with a $2,500 balance. The inventory purchase will result in an account payable of $6,500. The firm already paid $3,000 for an engineering study to support the case for making the investment. The firm's tax rate is 40%. What is the net cash outflow at time zero?

a. Less than 120,000

b. Between 120,000 and 125,000

c. Between 125,000 and 130,000

d. Greater than 130,000

e. Cannot be determined with this information

PLEASE EXPLAIN HOW YOU GOT TO YOUR ANSWER

Reference no: EM131954045

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