MEMORANDUM Date: March 17, 2013 To: CFO From: Subject: Florabama Variable Interest Analysis The purpose of this memo is to analyze the Florabama energy venture that Meyer Inc. initiated with Saban Company in February 2011. Meyer Inc. owns 60 percent of Florabama, and Saban Co. owns the remaining 40 percent. The profits are shared according to ownership percentage. The arrangement allows Saban Co. to purchase up to 20 percent of the power produced by Florabama at cost plus. Due to the business nature and level of equity investment at risk, Florabama has been deemed a Variable Interest Entity (VIE) for financial reporting purposes. This memo will analyze the primary purpose and design of Florabama to determine whether Meyer Inc. or Saban Co. meet the criteria to be treated as variable interest holders, and whether either entity should be considered the primary beneficiary. Findings A variable interest holder is an entity that owns investments or other interests that will absorb portions of a VIE's expected losses or receive expected residual returns (Grant Thornton LLP, n.d.). Both Meyer Inc and Saban Co. meet the criteria to be considered variable interest holders. Meyers Inc. absorbs 60 percent of the profits and losses of the VIE, while Saban Co. absorbs 40 percent of the profits and losses of Florabama and maintains a cost-plus arrangement. The cost plus arrangement is a variable interest, which allows Saban Co. to receive low cost financing on power and energy. Meyer Inc. has the obligation to absorb losses or receive gains as well as the power to direct the economic activities of Florabama. The economic and controlling interest of Florabama by Meyer Inc. meet the primary beneficiary standards, which require fin... ... middle of paper ... ...e List FASB (Financial Accounting Standards Board). (n.d.) ACS 810-10-50-3. Retrieved March 10, 2014, from FASB Accounting Standards Codification database. FASB (Financial Accounting Standards Board). (n.d.) 810-10-50-4. Retrieved March 10, 2014, from FASB Accounting Standards Codification database. FASB (Financial Accounting Standards Board). (n.d.) 810-10-25-55. Retrieved March 10, 2014, from FASB Accounting Standards Codification database. FASB (Financial Accounting Standards Board). (n.d.) ASC 810-10-15-14(a). Retrieved March 10, 2014, from FASB Accounting Standards Codification database. Grant Thornton LLP. (n.d.). Variable interest entity accounting considerations:. Retrieved from Grant Thornton LLP Web site: http://www.grantthornton.com/staticfiles/GTCom/Audit/Assurancepublications/Updates%20at%20a%20Glance/vie_snapshot%20%20external%20FINAL.pdf
company, the benefit of bringing in a 35% net income outweighs the cost of a 2% loss of interest
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In SIVMED’s case, based on the definition of WACC, all capital bases should be included in its WACC. These include its common stock, preferred stock, bonds and long-term borrowings. In addition to being able to compute for the costs of capital, the WACC also determines how much interest SIVMED has to pay for all its activities. The value of the firm’s stock, which we want to maximize, depends of the after-tax cash flow. Hence, after-tax values for WACC are also needed. Furthermore, cost of capital is used to determine the cost of each debt, stock or common equity. Being able to analyze these will be essential into deciding what and how new capital should be acquired. Hence, the present marginal costs are ideally more essential than historical costs.
Ross, S.A., Westerfield, R.W., Jaffe, J.F., & Roberts, G.S (2001) Corporate Finance. 3 th ed.Toronto, McGraw-Hill Ryerson.
Larketta Randolph financed a mobile home through Green Tree Financial. Her home retail installment contract and security agreement required that Randolph buy vendor’s single interest insurance, which protects the vendor from the costs of repossession if any default were to occur. The agreement also provided that if any disputes were to arise either under statutory law or case law that it would be resolved by binding arbitration.
Checkpoint.riag.com. Accounting, Audit & Corporate Finance Library, Editorial Materials, Specialized Industries, Homeowners’ Associations, Chapter 5 Income Taxes, 503 Form 1120 – Taxation under IRC Section 277
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The Body Shop International case is an interesting case study into the miscommunication of owners and stockholder interests with regard to financial conditions. Anita Roddick, the founder of The Body Shop had no financial experience and thought that all she needed to do was expand her business and the financing would take shape as she developed her business. While Anita’s product concept of a natural skin-care line was good; her lack of experience in financial matters took its toll on her business.
Thesis: Businesses deem financing necessary when they are just beginning, expanding, or recovering; Debt financing and equity financning have many advantages and disadvantages but also change the entire accounting method that is to be considered while running the business.
There is a range of criteria relevant for a decision of financing a new venture. To construct my list for the evaluation of a new company as an opportunity I have selected to refer to t...
This is a publicly traded company in the US that has been ding quite well in the recent years. The company’s 10k filing for the year 2014. From this statement, the risks facing the company will be identified classified and suggestions made on how best to mitigate them in the subsequent areas. There are various areas that the risks can arise based on the company’s 10k filling (Mertz, 1999).
One of the key areas of long-term decision-making that firms must tackle is that of investment - the need to commit funds by purchasing land, buildings, machinery, etc., in anticipation of being able to earn an income greater than the funds committed. In order to handle these decisions, firms have to make an assessment of the size of the outflows and inflows of funds, the lifespan of the investment, the degree of risk attached and the cost of obtaining funds.
... stock fluctuations. If a financial advisor cannot be afforded, it would have been in the best interest of the investor to read more on the stock market news regarding what stocks were predicted to have a profitable growth. The investor could have stayed with energy and renewables, just cold have chosen different corporations then the ones chosen.