Question: In the Enron case the company eventually turned to back-door guaranteeing of the Chewco, one of its SPE, to satisfy equity investors. Assume that one

In the Enron case the company eventually turned to “back-door” guaranteeing of the Chewco, one of its SPE, to satisfy equity investors. Assume that one guarantee was for a $16 million loan. The loan agreement required that Enron stock should not fall below $40 per share. If the share price did decline below that trigger amount, either the loan would be called by the bank or the bank could choose to increase the guaranteed number of Enron shares based on the new price (assume $32). If the bank decides to increase the number of shares guaranteed, what would be: (1) the original number of shares in the guarantee and (2) the new number of shares? Why would it be important for Enron to disclose information about the guarantee in its financial statements?

Step by Step Solution

★★★★★

3.43 Rating (166 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

By guaranteeing the SPEs debt Enron was still at risk for repayment of the SPEs ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

376-B-O-B-B-E (963).docx

120 KBs Word File

Students Have Also Explored These Related Organizational Behavior Questions!

One of New Centurys most important accounts was its loan repurchase loss reserve. Each accounting period, New Century was required to estimate the ending balance of that account. What general...

Why should we expect a firms stock price to decline by approximately the amount of the dividend payment on the ex-dividend date? Why do U. S. stock prices generally fall by less than the amount of...

If a bank attracts new equity to increase its Tier 1 capital ratio, what happens to its cost of equity and its intrinsic value if it invests the new equity capital in (1) deposits with the central...

19. In the Enron case, the company eventually turned to "back-door" guaranteeing of the debt of Chewco, one of its SPEs, to satisfy equity investors. Assume that a $16 million loan agreement required...

9. In the Enron case, the company eventually turned to "back-door" guaranteeing of the debt of hewco, one of its SPEs, to satisfy equity investors. Assume that a $16 million loan agreement required...

1. Dennis just got hired after not working for two years following his reporting of financial statement fraud by his previous employer. Dennis was treated as an outcast and ultimately fired after the...

Dear Tutor, Please help me with Enron Case - You decide. Thank you very much in advance Download Attachments:Enron Case - you decide.docx Scenario Summary Enron Corporation began as a small natural...

Enron Memorandum Assignment Beginning on Page 427 of the textbook, the Enron case is discussed. You are a staff auditor working for Arthur Andersen. You discover the use of certain Special Purpose...

Enron Corporation entered 2001 as the seventh largest public company in the United States only to later exit the year as the largest company to ever declare bankruptcy in U.S history. Although...

A bleary-eyed student awakens one morning, late for an 8:00 class, and pulls two socks out of a drawer that contains two black, six brown, and two blue socks, all randomly arranged. What is the...

(b) Calculate the mean and Standard deviation for the following distribution of lengths of 200 metal bars. 30 31 32 33 34 35 36 37 38 39 23 35 62 44 18 00

how do the different categories of monsters highlight the point that monster movies offer insights into the strength and weaknesses of humanity?

Choosing a sampling method. Identify your sampling method using the following questions as a guide: a. What is the population from which my sample will be taken? b. For quantitative research: i. What...

1. A variety of definitions of earnings management are given in this chapter. Discuss the accounting techniques used by North Face by evaluating whether and why earnings management exist educing the...

1. Why do financial analysts look at measures such as EBITDA and operating free cash flow to evaluate financial results? How do these measures differ from accrual earnings? Do you believe auditors...

In this chapter we discuss problems encountered by the PCAOB in gaining access to inspect work papers of audits by U.S. international accounting firms of Chinese companies. Explain why these problems...

A manufacturer of video games develops a new game. The development costs are $850,000 immediately and another $850,000 at the end of two years. When the game is released, it is expected to make $1.2...

Suppose that a risk-neutral investor has a choice between buying a one-year bond paying 5 percent today, a two- year bond paying 5.4 percent today, a three-year bond paying 5.8 percent today, or a...

Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 $ 1,230,000 1 405,000 2 470,000 3 365,000 4 320,000 All cash...