timed out BattleActs100

Liquidate or Continue Operations

myID_+ priorDate_+ record_+ WET_+ fadeFactor_

Determine whether investors would rather liquidate the company or continue operations. (Modeled on 2018.Spring #12)

  current score:
0.000

DECISION (L/C/-)
    invested capital – CoL
    PV(future income)
pre-tax income that makes the decision irrelevant
statutory surplus S 2000
deferred tax asset DTA 3000
unearned premium reserve UEP 4000
undiscounted loss reserve R 5000
written premium (annual) WP 100
pre-tax income PTI 100
cost of liquidation CoL 100
cost of capital % CoC 12%
tax rate (corporate) % tax 0.35
pre-paid acquisition cost % acq 0.25
discount factor for loss reserves % disc 0.80

Formulas

invested capital
=    S    +    ( % acq x UEP )    +    ( 1 - % disc ) x R       DTA

PV(future income)
=    (pre-tax income)    x    ( 1 - % tax )    /    ( % CoC )


Note

( % acq x UEP)
is    equity in the UEP

( 1 - % disc) x R
is    equity in the undiscounted reserves

Decision Table


invested capital    –    CoL    >    PV(future income)    →    liquidate
invested capital    –    CoL    <    PV(future income)    →    continue operations
invested capital    –    CoL    =    PV(future income)    →    doesn't matter

Solution:
DECISION (L/C/-)
    invested capital – CoL
    PV(future income)
pre-tax income that makes the decision irrelevant 123456
→ shout-out to MM and mtl for finding bugs in this template (now fixed!)