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Problem - Own Debt Profits - Most economists describe three determinants of the interest rates on a borrower's debt: a real interest rate, which is a charge for using capital; an adjustment for expected inflation to insure that debt is repaid in dollars having the same purchasing power; and an adjustment for the borrower's credit risk, which is intended to compensate the lender for the possibility that the borrower will default. Certain companies book gains and losses on their own debt on the income statement due to a revaluation of debt to fair value. For example, if expectations for inflation were to rise, the appropriate interest rate to charge borrowers would rise above the contractual historical interest rate initially used to value and record the debt. If the debt is adjusted to fair value (i.e., rediscounted at the new higher interest rate), the debt book value falls, and because a liability has decreased, a gain is recorded on the income statement. The counterparty to the debt (e.g., the lender) records a loss. These adjustments can be extremely large for banks. For example, Citi's 2011 third quarter net income was $3.7 billion, which included a $1.9 billion gain from revaluing its own debt (before tax) in revenues and income. In Citi's case, the gain was driven from a widening in its credit-default swap spreads, which is an indication of its higher probability of default on its obligations and derivative contracts. How should an analyst view gains on the revaluation of a company's own debt due to changes in its credit risk? Is the gain a persistent component of earnings? How would a debtor realize such gains (i.e., how does such a gain affect cash flows)?
Incorporate appropriate animations, transitions, graphics, and "notes" for each slide. The notes may be comprised of brief paragraphs or bulleted lists describing the content of each slide. Support your presentation with at least five (5) schol..
budget variance analysisimpact of marketinga large national mco recently entered a major southwestern metropolitan
You would like to have 45,000 in 11 years. To accumulate this you plan to deposit an equal amount each year which would earn 5% interest compounded. The first payment will be made at the end of the year.
Yama Corporation is considering the following three competing investment proposals:
(a) Calculate the value of the all-equity ( i.e. unlevered) business. Show calculations (b) Calculate interest expense after the company issues debt.
What is your expected annual rate of return for this portfolio: stock A 1000 shares at $22/share expected return 10%, stock B 750 shares at $11.50/share
Write a 1600 word summary and evaluation of any single one of the three classic articles on international finance (listed in the Delivery and Resources section).
Recovery of earlier increase in working capital and in addition, cash flow from salvage of $500,000. What is the incremental cash flow for year 4?
Which of the following statements concerning the asymmetric information theory of capital structure is false?
Jose Peacher is an executive with large manufacturing company. A former coworker of his recently started a company and raised $1 million from a well-known.
Can you think of any circumstances in which it would be ethical? Can you imagine a situation in which you yourself would do something unethical?
if stock a had a price of 120 at the beginning of the year 150 at the end of the year and paid a 6 dividend during the
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