Two enterprises, X and Y, own 100% of the stock of JV, a joint venture. All the equity, $10 million, is equity at risk. X and Y have no involvement in the operation or management of JV, which is the responsibility of a third enterprise, Z. Z provides a $90 million loan to JV in exchange for the right to direct all of JV's activities via a management contract. JV is expected to be profitable without further financing. Is V a VIE and Why?
Two enterprises, X and Y, own 100% of the stock of JV, a joint venture. All the equity, $10 million, is equity at risk. X and Y have no involvement in the operation or management of JV, which is the responsibility of a third enterprise, Z. Z provides a $90 million loan to JV in exchange for the right to direct all of JV's activities via a management contract. JV is expected to be profitable without further financing. Is V a VIE and Why?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Two enterprises, X and Y, own 100% of the stock of JV, a joint venture. All the equity, $10 million, is equity at risk. X and Y have no involvement in the operation or management of JV, which is the responsibility of a third enterprise, Z. Z provides a $90 million loan to JV in exchange for the right to direct all of JV's activities via a management contract. JV is expected to be profitable without further financing. Is V a VIE and Why?
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