M.Camus bought 1000 shares of Oran Co.at $60 per share and 100 shares of Gitane Co.at $40 per share.Both shares are now worth $50 per share.Both companies have offered to buy back their shares.If M.Camus would like to have about $5,000 in cash,should he sell the Oran or Gitane?

Question

Quizplus · Accepted Answer

If M. Camus sells his Oran shares at $50 per share, he will suffer a loss of $10 per share, which amounts to a total loss of $10,000 (1000 shares x $10). However, this loss can be used as a tax deduction, leaving him with more than $5,000 in cash after taxes. On the other hand, if he sells his Gitane shares, he will make a profit of $10 per share, which amounts to a total profit of $1,000 (100 shares x $10). This profit will be subject to capital gains tax, which will reduce his cash proceeds to less than $5,000. Therefore, M. Camus should sell his Oran shares to achieve his desired cash position.

MCamus Bought 1000 Shares of Oran Co