What is a default swap and what is its use?
What will be an ideal response?
A default swap pays very small amounts and a large amount during default. They are used to protect bondholders against default by a bond issuer.
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Explain the seller's remedy of avoidance of installment contracts
What will be an ideal response?
J.B. Enterprises purchased a new molding machine for $85,000. The company paid $8,000 for
shipping and another $7,000 to get the machine integrated with the company's existing assets. J.B. must maintain a supply of special lubricating oil just in case the machine breaks down. The company purchased a supply of oil for $4,000. The machine is to be depreciated on a straight-line basis over its expected useful life of 8 years. Which of the following statements concerning the change in working capital is MOST accurate? A) The $4,000 may be expensed each year over the life of the project as part of the incremental free cash flows. B) The $4,000 is added to the initial outlay and recaptured during the terminal year, hence having no impact on the projects NPV or IRR. C) Even if the $4,000 is fully recovered at the end of the project, the project's NPV and IRR will be lower if the change in working capital is included in the analysis. D) The $4,000 paid for oil is added to the initial outlay, offset by the tax savings $1600.