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Off-balance sheet financing (transactions), as the name implies, are non-recording of financial obligations on the balance sheet. According to our text, in addition to operating leases that are indistinguishable from capital leases, these transactions can be through-put agreements where a company agrees to run goods through a processing facility; take-or-pay arrangements, where a company guarantees to pay for goods whether needed or not; certain joint ventures and limited partnerships; product financing arrangements, where a company sells and agrees to either repurchase inventory or guarantee a selling price; selling receivables with recourse and recording them as sales rather than liabilities; selling receivables as backing for debt sold to the public; and outstanding loan commitments (Subramanyam, 2014).
There have been controversies surrounding this kind of “creative” accounting because it can encourage the manipulation of financial statements and fraud such as occurred at Enron. Despite these arguments, most companies that use these transactions do so in compliance with accounting rules and regulations. Do you or do you not support the use of off-balance sheet financing.
Company D confidently estimates that drilling and completing the well will produce 100,000 barrels of oil at a present value cost of $6 million.
FedEx Corp. stock ended the previous year at $126.19 per share. It paid a $2.00 per share dividend last year. It ended last year at $129.49. If you owned 490 shares of FedEx, what was your dollar return and percent return?
how much additional money supply can be created by the commercial banking sector? Are there any limitations to the money creation process?
Parker is looking at a new sausage system with an installed cost of $480,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $70,000. The sausage syste..
Tax depreciation exceeded book depreciation by $40,000. A reconciliation from financial income to taxable income for 2016.
Stock Y has a beta of 0.8 and an expected return of 8.2 percent. Stock Z has a beta of 0.9 and an expected return of 8 percent. What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other?
You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 13 percent, –13 percent, 20 percent, 25 percent, and 10 percent. Suppose the average inflation rate over this period was 3.0 percent and the average T-bi..
A firm can buy a machine for $900,000, takes an investment tax credit of 15%, how much should the minimum annual lease payments be?
Additionally, the president of the company will only undertake the project if it has an NPV of $100,000. What bid price should you set for the contract?
Buggy Whip Manufacturing Company is issuing preferred stock yielding 8%. Selten Corporation is considering buying the stock. Buggy's tax rate is 0% due to continuing heavy tax losses, and Selten's tax rate is 34%. What is the after-tax preferred yiel..
Hypothesis Testing We are estimating the spares requirement for a radar power supply. The power supply was designed with a mean (μ) life of 6500 hours. The standard deviation (σ) determined from testing is 750 hours. What is the likelihood that a pow..
Your firm has an average collection period of 29 days. Current practice is to factor all receivables immediately at a 1.25 percent discount. What is the effective cost of borrowing in this case? Assume that default is extremely unlikely
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