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The Wall Street Journal (March 12, 2007) reported that an analyst with the Center for Financial Research and Analysis found an interesting item in an earnings report from New Century Financial Corporation, a mortgage lending company specializing in "subprime" loans to borrowers with checkered credit histories. The analyst discovered that New Century had for the first time combined two categories of reserves for losses. New Century combined the reserve for losses on defaulted loans with a reserve for losses on real estate that had been acquired through foreclosure. By putting the two reserve accounts together, New Century could show that total reserves for losses had increased only slightly from the prior period. Hidden, though, was the fact that the reserve for losses on bad loans actually dropped by 8.7 percent. The Center for Financial Research and Analysis pointed out the discrepancy of a drop in reserves at a time when defaults on subprime mortgages were increasing across the country
REQUIRED:
Discuss the effect of "reserves for loan losses" on the financial statements and why a company such as New Century might be reluctant to increase the reserve. Discuss what economic factors influence loan defaults (and especially loans in the subprime mortgage market).
BLW Corporation is considering the terms to be set on the options it plans to issue to its executives. Which of the following actions would decrease the value of the options, other things held constant
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in your own words explain how to obtain the ldquoexpected value of perfect informationrdquo for any payoff table which
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kleener co. acquired a new delivery truck at the beginning of its current fiscal year. the truck cost 52000 and has an
Preston Toy Co. has warrants outstanding that allow the holder to purchase a share of stock for $22 (exercise price). The common stock is currently selling for $28, while the warrant is selling for $9.25 per share.a. What is the intrinsic (minimum) v..
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For the year just ended, Ypsilanti Yak Yogurt shows an increase in its net fixed assets account of $605. The company took $190 in depreciation expense for the year. How much did the company spend on new fixed assets?
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