Shorewood

5 Things You Need to Know When Analyzing Corporate Debt

<< In a nutshell, debt is being efficiently utilized if the investment it is being used for is providing a higher return on capital than the cost of the debt itself (the interest rate). >>

The appropriate hurdle rate for projects that are "financed with debt" is not the cost of the debt, but something higher, commensurate with the risk of the project. The borrower could not issue debt without first having some higher-cost equity: So, some of that higher cost should be added to the cost of the debt.

A debt issue increases the risk borne by stockholders and raises their required rate of return, the cost of equity capital. This additional cost of equity is rightly added to the interest cost of the debt.

Bulking Up the Petrohawk: Parsing HK's Solid Quarter

"...one IP at 13 MMcfepd and one at 6 MMcfepd with a 42% NRI for 8 MMcfepd net combined."

"A five well (EOG) operated pilot begins this quarter."


Am I the only one who does not know what "IP," "NRI," and "EOG" stand for?

Forward Looking and the Discounting Theory

There is a bit of illogic, here. If everyone could forsee a collapse six-months in advance, then the collapse would happen at that time, not six months later.

Ditto, of course, for an upturn.

Should the Government Partially Refinance Mortgages?

One of the problems with the Baker-Samwick proposal is that no one knows who holds the mortgage on a specific home.

The CNBC-PZE Fiasco

Count Fortune mag among those who confused the firms. See page 40 of the Dec 24 issue. PZE is one of Fortune's "Best Stocks for 2008."

Note the comment on page 41 that "the company just announced a huge [oil] find offshore from Rio De Janeiro,..." which indicates that Fortune confused PBZ with PBR.