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chapter 7 pg 4

R

r_v.s

Member
1.Would you pls explain the sentence "The equity has a value greater then 0 because the debt is not due immediately". The co's assets would hopefully have grown by the maturity date and what remains after the debt is repaid would go to the shareholders, that I'm able understand. But what does this particular sentence mean???:confused:

2.Would you also please explain the terms buying, selling basis on pg 6 of the same chapter? If I plan to buy, what basis should I use? Why is the selling basis more prudent? Specifically does selling basis mean what I would obtain on selling?

3. Later on, in the same chapter, under defeasance, it says "however, you wwould have the old defeasance asset which would be highly likely to be worth a corresponding amount less" Is the old defeasance asset the original bond the company issued?
 
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1.Would you pls explain the sentence "The equity has a value greater then 0 because the debt is not due immediately". The co's assets would hopefully have grown by the maturity date and what remains after the debt is repaid would go to the shareholders, that I'm able understand. But what does this particular sentence mean???

If a company had assets of 100m and debt which matures today of 110m, would you buy the equity? If the debt matyured in 10 years time, oes the equity possibly have non-zero value?



2.Would you also please explain the terms buying, selling basis on pg 6 of the same chapter? If I plan to buy, what basis should I use? Why is the selling basis more prudent? Specifically does selling basis mean what I would obtain on selling?


Selling basis means using the selling price in the market (which is lower and more prudent)


3. Later on, in the same chapter, under defeasance, it says "however, you wwould have the old defeasance asset which would be highly likely to be worth a corresponding amount less" Is the old defeasance asset the original bond the company issued?

No - I think the old defeasance asset is whatever you bought (an asset) with the money you originally raised when the bond was issued.
 
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