Discount margin calculation

Another way to calculate the yield return is the discounted margin. It differs from the simple margin because the first one amortizes the bond s premium or discount at a constantly compounded rate. The main disadvantage of this method is that it requires estimation of the reference rate over the bond s life. Assuming a bond paying semi-annual coupons, the discounted margin is given by (10.5) ... 

One common method of measuring potential return that employs discounted cash flows is discount margin. This measure indicates the average spread or margin over the reference rate the investor can expect to earn over the security s life given a particular assumption of the path the reference rate will take to maturity. The assumption that the future levels of the reference rate are equal to today s level is the usual assumption. The procedure for calculating the discount margin is as follows ... 

Step 4. Compare the present value of the cash flows as calculated in Step 3 to the price. If the present value is equal to the security s price, the discount margin is the margin assumed in Step 2. If the present value is not equal to the security s price, go back to Step 2 and select a different margin. 

EXHIBIT 3.16 Calculation of the Discount Margin for a Floater Floater Maturity = 6 years Coupon rate = Reference rate + 80 basis points Resets every 6 months Maturity value = 100 ... 

Exhibit 3.16 presents the calculation of the discount margin for this security. Each period in the security s life is enumerated in Column (1), while the Column (2) shows the current value of the reference rate. Column (3) sets forth the security s cash flows. For the first 11 periods, the cash flow is equal to the reference rate (10%) plus the quoted margin of 80 basis points multiplied by 100 and then divided by 2. In last 6-month period, the cash flow is 105.40—the final coupon payment of 5.40 plus the maturity value of 100. Different assumed margins appear at the top of the last five columns. The rows below the assumed margin indicate the present value of each period s cash flow for that particular... 

The calculation at a social discount rate implies no capital recovery since it represents an investment at the margin and in any case is extraneous to the argument below. Because of the fuel replacement characteristic of the new technologies the opportunity cost of the energy sold is presumed to escalate at... 

A number of researchers have estimated the effective marginal credit rate (the percent reduction in the cost of R D) implicit in the several incarnations of this tax credit using a variety of methods and assumptions they have found effective credit rates that are substantially less than the statutory rates of 20 or 25 percent. The divergence between the effective and statutory rates stems from the way in which the credit is calculated, the interaction of the credit with other provisions of the internal revenue code,11 the rate at which future savings are discounted to their present value, and the fact that not all firms have sufficient tax liability to use credits in the year they are earned. 

It is from the assumed values of 3-month LIBOR (i.e., the current spot rate and the implied forward rates) and the required margin in Column (6) that the discount rate that will be used to determine the present value of the cash flows will be calculated. The discount factor is found as follows ... 

In Figure 36.1, Acme Builders (part of the "building" market) places only 26 orders per year with an average of 30 line items and 1,200 pieces on each order. Approximately 30 pieces fit in each box. These characteristics generate a 16% margin for PlumbCo at list price. This means that they could be granted a discount of up to 6.5% and still have a calculated customer margin of over 10%. 

CALCULATED MARGIN without discount 8,018 with discount % without discount 16.0% % with discount 4,768 10.2%... 

One of the objectives or criteria considered in this model is to maximize profit. In this model, the profit is calculated by subtracting the distribution costs from the sales revenue. The revenue can be obtained by multiplying the variable contribution margin (VCM) of an option times the binary variable for that option. The VCM is the revenue obtained from the sales according to how the product is supplied (which option is selected for each customer per plant). If the product is sent directly from the plant or if the product is sold to the independent distributors, the VCM for these demands will have some discount. This is to encourage customers to receive direct shipments and to reward the distributors for storing and distributing the products of several customers. 

The IRR is considerably more difficult to calculate than the NPV without the assistance of a computer, and it represents a sophisticated form of analysis. The IRR is defined as the discount rate that equates the present value of aU cash flows with the initial investment made in a project. The IRR consists essentially of the interest cost or borrowed capital plus any existing profit or loss margin. A project is financially more favorable when the positive difference between IRR and the interest rate charged for borrowing increases. Once all the cash flows have been accounted for over the life of a project, the IRR has to be computed by an iterative procedure. 

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