Replace Calculations in the Redemption Agreement and eSign it in minutes

Aug 6th, 2022
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How to Replace Calculations in the Redemption Agreement

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this video will walk you through incremental analysis for replacing or retaining equipment in a decision to retain or replace equipment mancell compares the cost which are affected by the two alternatives generally the relevant items to be considered are the variable manufacturing cost and the cost of new equipment the book value of the machine old machine is a sunk cost which does not reflect the decision remember a sunk cost is a cost that cannot be changed by present or future decisions so just a quick reminder of what is Book value we talk about Book value thats simply the cost of the equipment less its accumulated appreciation so any book value means that we have not depreciated the piece of equipment totally yet and when if you just eliminate that piece of equipment and dont get any trade-in value that book value becomes a loss on the income statement so instead of depreciating it and we impact our income statement itll be a loss both have the same impact on the income stateme

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Replacement Cost captures the loss that would occur if a counterparty were to default and was closed out of its transactions immediately.
The redemption value is stated as a percentage of face value. For example, a $1000 bond redeemable at 105 is redeemed at 105% of $1000 = $1050. Bonds can be freely bought and sold.
EAD = (RC + PFE), where RC stands for Replacement Cost, PFE for Potential Future Exposure and the constant is set to 1.4. The replacement cost is a measure of the current netting set value (sum of all of the trades PV), taking into account potential collateral exchange, and is floored at zero.
Under the current exposure method, a financial institutions total exposure is equal to the replacement cost of all marked-to-market contracts plus an add-on that is meant to reflect the potential future exposure (PFE).
The EAD is obtained by adding the risk already drawn on the operation to a percentage of undrawn risk. This percentage is calculated using the CCF. It is defined as the percentage of the undrawn balance that is expected to be used before default occurs. Thus the EAD is estimated by calculating this conversion factor.
Under the CEM, the EAD is calculated as the sum of the current market value of the instrument and a potential future exposure (PFE) add-on component that reflects the potential change in the instruments market value between the computation date and a future date on which the contract is replaced or closed out in the
Replacement Cost captures the loss that would occur if a counterparty were to default and was closed out of its transactions immediately.
Under the CEM, the EAD is calculated as the sum of the current market value of the instrument and a potential future exposure (PFE) add-on component that reflects the potential change in the instruments market value between the computation date and a future date on which the contract is replaced or closed out in the

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