Archive for the ‘Taxes’ Category

You and your loan don’t have to be ideal

Taxes, personal finances, revenue, stock, stock exchange | Posted by admin
May 14 2010

Complete a project together. Sort of like a first date, planning initial activities with a partner enables you to work together without the pressure of eternal commitment. You and your partner don’t have to prove you are ideal mates. You also avoid jumping into a relationship that presumes you will do more than you want to do. The planning reduces the risk of unrealistic expectations.

The purpose of this exercise is to help document the task and relationship agreements you have with your partner. Check off each item as you fulfill the assignment. Document your agreements in a joint meeting.

Define the area of interest where you and your partner are going to create an initial activity (marketing, sales, product development, and so forth). Brainstorm a list of potential activities you can do together. Can you agree on one specific activity to work on together?

Document the start and stop point of the activity. Develop a timeline of the activity. Set the boundaries of the activity (what you won’t try to accomplish).

List the various roles and responsibilities of each partner.

Agree on the decision-making style to be used. Gain consensus on the strategy for resolving conflict. Allocate resource contributions and commitments in writing.

Create a set of criteria to evaluate the success or failure of the task objectives. Create a set of criteria to evaluate the success of the relationship development.

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How much does a credit attoreny charge?

Taxes, personal finances, revenue, stock, stock exchange | Posted by admin
Jan 10 2010

9No matter what the initial fee is, you will not be required to come up with additional money until the first Office Action comes from the USPTO. This is not likely to occur for a year or longer, so you will have time to accumulate the money to pay for the response to that Office Action.

Your attorney’s or agent’s responses to the Office Actions will typically cost $2,500 for a response to the first Office Action and about $1,500 for a response to the second Office Action (if a second one is necessary). At this writing, the utility patent issue fee is $700 and your attorney or agent may add in his own fee for handling. Utility patents will have maintenance fees payable in six month windows which open at of 3 , 7 , and 11 years after the date the patent is granted, ranging from $450-$1,900 at this writing (based on which maintenance fee is being paid). Again, these are the USPTO fees and your attorney may charge a bit more for handling the payment of maintenance fees for you.

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Looking for a partner in credit

Finances, Fiscal Regulations, Global Markets, Loans, Taxes | Posted by admin
Jan 05 2010

Another potential professional partner is your prototype designer. Again, like the patent attorney and patent agent, this is something that is suggested to prototype designers with some regularity. Unless your invention is that one-in-a-million idea, your prototyper would probably prefer to be paid in money than to bet on the success of your invention.

Almost any professional whose services you will use in the development and marketing of your invention has the possibility of becoming a professional partner. If you choose to pursue this avenue, be cautious not to sign on too many professional partners. This is another area where you could find yourself in the position of becoming a minority investor/owner of your own invention.

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Beyond making a mortgage payment

Loans, Taxes | Posted by admin
Sep 07 2009

Most Americans have the majority of their savings tied up in their home. Beyond making a mortgage payment, few savers are able to put away excess income. The government encourages saving in homes. Mortgage interest is tax-deductible. Credit card interest is not. Profit on the sale of a residence is tax-exempt up to $500,000. Government programs support firsttime buyers and lower interest rates for low-income homeowners.

Realtors play up the savings aspect of homeownership. Savers are shown charts of home appreciation and tax savings compared to renters. This leads to overconfidence. Despite government support, a family home is an erratic savings vehicle.

The value of a dollar invested in a family home is not fixed. Home equity can swing up and down. When the local economy is bad, homeowners who lose their jobs often find out that they have lost all the savings in their home as well. In the late 1980s, the oil belt recession forced a massive loss of both jobs and homes. In the early 1990s, New England had a similar episode caused by the collapse of the real estate industry. The massive closing of military bases and defense plants a few years later caused thousands of Southern California residents to lose both jobs and homes. When a
home is worth less than the mortgage, even employed homeowners have lost all their savings.

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How interest rates work

Finances, Loans, Taxes, Uncategorized | Posted by admin
Jul 06 2009

There are two basic types of interest that every person who uses debt or credit cards needs to understand: simple interest and compound interest. Over time, there is a significant difference between these two methods of calculating your interest on a debt. Part of your strategy to eliminate debt will probably involve getting rid of debts that use compound interest first.

Often, the rate you’re quoted on a loan or a savings account is not what you actually pay or earn. Depending on how often the actual interest due to you or the lender is calculated, your rate may be noticeably higher than the “nominal” or stated rate. APR stands for annual percentage rate, and refers to the actual cost of borrowing the money based on the frequency of the interest calculation. For example, a 6% loan may have an APR of 6.15%, depending on the calculation period. APY is identical to APR, except that it calculates the actual rate that our savings earns, instead of the interest we pay on a loan.

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Building in Market Risk

Finances, Loans, Taxes | Posted by admin
Jun 12 2009

We have yet to take into consideration market risk. Using a Black-Scholes model, a volatility of 50 percent (characteristic of DuPont and Dow stock today), and an overall chance of success of 10.4 percent, the value of the Polyarothene project is $3.57 million versus $1.67 million based on the decision tree alone.

This result does not consider the option to abandon at each of four stages; it is based on a straight 10.4 percent unique risk. So it is the rifle shot, but it takes into account the volatility of the marketplace. This result is also interesting—because of market volatility alone, it might still pay to do this rifle shot project, just as it would pay to drill the exploratory well in Chapter 5. NPV gave the wrong answer for another reason!
Of course, we should take into account both kinds of risk.

This requires us to work backward from the end result, using the probabilities of success cited in the previous section. First, value an option of entering stage 4 with an 83 percent chance of successful commercialization, using Black-Scholes. With this value in hand, go back a stage: Value the option of entering stage 3 with a 75 percent success rate and the reward (underlying security) being the value of the stage 4 option, discounted for the probability of success.

Do it twice more until you are back to the beginning of the process, stage 1. We have created a series of linked, nested, compound options. Although the detailed calculations are beyond the scope of this book, the result is interesting: $4.75 million.

In effect, we have now moderated the negative impacts associated with unique risk using multiple options to abandon and have taken full advantage of the positive values associated with market risk.

To summarize, without the option to abandon, the project has an NPV of –$2.60 million. With four options to abandon, which relate only to unique risk, it is worth $1.67 million. Adding market risk to the equation improves the value to $4.75 million. In relative terms, each step in risk management represents an enormous increment in value. Note also that these results depend critically on the systematic reduction of risk at each stage and the acceleration of costs from stage to stage. But that is how R&D should be managed.

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Hedging as a Risk Management Tool

Finances, Global Markets, Taxes | Posted by admin
May 23 2009

A second critical tool in risk management is hedging, which is greatly facilitated by the global banking system. In the commercial world, if one wishes to buy a fermentation plant from a Swiss supplier with 10 percent down and 90 percent due on delivery 12 months hence, one considers a currency hedge. If the price is quoted in U.S. dollars, the Swiss manufacturer may buy a forward option on dollars. If it is quoted in Swiss francs, the U.S. customer may buy a forward option on Swiss francs. In either case, for a small price, their business plans are not exposed to currency risk. When I joined W. R. Grace & Co. in 1982, I found just such a contract on a fermentation pilot plant in place. In fact, the dollar strengthened dramatically, so we bought the plant far more cheaply than expected, while being fully protected if the currency had moved in the opposite direction.

The bankers offering these hedges can reduce their risks substantially, for example, by finding a counterparty, perhaps a Swiss firm buying computers from a U.S. supplier in the same time frame. This activity is classic hedging. Note that the hedge is against market risk.

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WHAT IS FINANCIAL CDO EQUITY?

Loans, Taxes, Uncategorized | Posted by admin
Apr 29 2009

CDOs are privately placed securities backed by pools of financial assets. CDO equity represents a residual claim on the cash flows from the assets collateralizing a CDO. Those assets could be leveraged loans, corporate bonds, residential mortgage loans, commercial mortgage loans, or something else (e.g., emerging market debt and trust-preferred securities).

A CDO redistributes cash flows from a set of assets to a series of notes. The cash flow structure is the most common type of CDO and will receive the bulk of this report’s attention. With this structure, cash flow coverage tests are based on asset par amounts. With the less common market value structure, coverage tests are based on asset market values. Synthetic structures, many of which forego coverage tests, are also quite common.

In funded synthetic CDOs, the collateral is a combination of credit default swaps (CDS) and high-quality assets. In cash flow structures, the mechanism that determines the allocation of cash flows is called a waterfall. Equity payments are last in priority, after liability payments, management fees and taxes. The residual cash flows available to pay equity can be diverted if interest and par coverage ratios fall below prescribed limits. Collateral losses due to default and trading losses will result in equity principal losses.

Because a CDO is collateralized by a pool of assets, a long equity position is similar in risk to a long position in the collateral and a short position in the senior notes. The senior note investors typically receive a fixed spread above LIBOR. Hence, equity is a matched funded position when the collateral is floating rate. The term funding structure implies that equity is also a nonrecourse, leveraged investment. Nonrecourse means the investment does not require additional funding other than what is originally tendered, regardless of how poorly the assets perform. Leveraged means the investor borrows money to purchase the security, presumably at a lower interest rate than the expected return on the investment. This allows investors to increase the potential return (but also the risk) of their investment.

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