In the case of rising interest rates the company is exposed to a considerable risk. Therefore a short hedge is necessary. This strategy offsets any possible loss of rising interest rates by gains in the futures position. Due to the fact, that the certificates were priced at a fixed spread over T-bills the T-Bill future represents the appropriate hedge instrument. Another argument in favour of hedging is that the company is able to focus on their core business instead of focusing on the market movements of the underlying asset.
Accrual and Cash Basis Accounting Shayla Johnson ACC/290 April 25, 2012 Courtney Wilson Accrual and Cash Basis Accounting Accrual basis and cash basis accounting are two major methods of accounting that are used to keep track of a company’s financial status. The two methods are very different. One is more difficult and more expensive than the other, and only one is recognized and accepted by the generally accepted accounting principles (GAAP). Accrual accounting is a method that recognizes revenue when it is earned, and when it is realized. This means that it is reasonable to expect cash is to be received at a later date, though service has already been performed.
These RIAs helped DFA offer its high net worth investors the same low cost small and microcap investment vehicles, while making these investments relatively more liquid in the secondary market. Furthermore, in the late 90s, when the tax laws became fairly harsh on individual investors, DFA started offering tax managed funds to lower the overall tax burden on the gains from those funds. However, compared to DFA’s other funds, these tax managed funds were relatively more challenging for DFA to manage, as DFA had to continuously balance the funds while considering tradeoffs between tax benefit and transaction costs to determine net benefit to the portfolio. 5) Explain the DFA small and value
Should Mr. Jones convert Smithon to an S corporation and change the fiscal year end to a calendar year end? A: Converting Smithon to an S corporation has merit if the goal is for Smithon to remain controlled by a small number of shareholders. However, the equipment deductions for the corporation may be more valuable than it would be to Johnson personally. Either way, Smithon's value to Johnson will be the same, if he purchases Smithon outright. Changing to a calendar year end has little useful effect, and it requires that Smithon produce a short-year tax return from Dec to Jan, which is a relatively unnecessary administrative expense.
This is a good assumption when debt represents a fairly small fraction of the firm’s value. Questions: 1. How can the Capital Asset Pricing Model be used to estimate the cost of capital for a project (as opposed to a financial asset)? In particular, how can we apply the CAPM to estimate the cost of capital when we do not even know how the investment in the project will be financed (debt vs. equity)? (Here you think in terms of the risk of the project, or project beta, or asset beta).
Real bills are short-term bonds that are sold to the Federal Reserve to commercial banks for use as capital for merchants. They are “real” because they are backed by the inventory compared to the treasuries themselves. This securitization ensured that injection of money was AAA rated. The U.S. Treasury used the Federal Reserve to attract investors away from private sector bonds and hold “Liberty-bond” drives. The Federal Reserve sold them at discount rates to make sure ensure that the supply of money
Fewer companies are willing to enter the market because of the SOX requirements that make going public too costly. Plus, the maintenance required to stay public is too expensive for smaller companies, forcing companies to look elsewhere to raise capital. Rising costs persuade large numbers of companies to exit the public markets to sidestep SEC regulation, creates two problems. First, the overall economy could suffer because corporations limit investment projects due to the higher-cost sources of capital to fund potentially new operations. Second, financially stressed companies that go dark are the very companies’ shareholders need to monitor usually and where transparency is most important.
It also has strategies to invest in value stocks, which have high book-to-market ratio and constantly outperformed growth stocks. DFA considers itself as a passive manager because in general DFA sold shares only if a stock no longer fit the portfolio it was in- if a small stock became large, or a value stock became a growth stock. So the constant change of the portfolio structure can be considered as one passive aspect of its strategy whereas precisely matching the holdings of the index portfolio would require DFA to buy discounted stocks in large blocks in which DFA’s traders took several steps to minimize the likelihood that they were being sold a lemon. 2) Who are DFA’s clients, and what are their concerns? What new clients is DFA trying to serve, and what are some of the new issues DFA will face in meeting these clients’ needs?
e. Do you expect that those notes will be called or redeemed? a. MSFT is raising money for general corporate purposes, which may include funding for working capital, capital expenditures, repurchases of stock and acquisitions. Also they choose to raise money at this time because the yields for treasury instruments are low, so Microsoft can issue in a lower rate. b. No, because the yields for treasury instruments are very low at the time, so the premium the company will add to their rate is very low, and the investors will get less money for the same level of riskiness, so the paper is not really cheap.
Contractors have often over-bid the price on projects. It is believed that contractors should unbalance the bid/front-end load of the project even though they collect money in a timely manner. If a contractor, particularly a subcontractor, doesn't unbalance the bid, the difference in cash disbursed against cash received on a project can be enormous, and no one would notice, because most accounting systems do not detect it,” he says. “When examining the job, you will find that you are funding labor and other costs but you're not being paid in