Bipo, 50, says she had been selling on the spot 'since birth.' Her family used to run Shanghai Restaurant a long time ago, but problems with their accountant forced them to close shop.
Bipo says they have never been in trouble in the community, nor have they been reported.
We refer to these Bonds with an Indexed-exercise-price Put Option as "BIPOs." Note that BIPOs are not identical to existing puttable bonds.
We demonstrate that issuing long-term debt without an explicit refunding feature (but where a repurchase of the outstanding bonds is not prohibited) results in higher refunding tax benefits than issuing callable debt.(2) Hereinafter, we refer to these bonds, which have no explicit call feature, as "repurchasable bonds." We also demonstrate that the ex ante refunding tax benefits obtained by issuing BIPOs exceed those obtained by issuing repurchasable bonds.
Although the present paper focuses upon the tax benefits of alternative refunding mechanisms, we argue that issuing BIPOs is also effective in mitigating transaction and agency costs.
In Section II, we show that issuing BIPOs is tax advantageous relative to issuing repurchasable bonds.
In this section, we demonstrate that, holding coupon payments fixed, the tax shield generated by issuing BIPOs is higher than the tax shield generated by issuing repurchasable (and thus also callable) debt.
Consider issuing BIPOs where bondholders have an option to sell them back to the firm for an amount denoted by P.(13) The exercise price of the BIPOs, P, is indexed to the price of newly issued bonds which are otherwise equivalent to (i.e., have the same future payments as) the outstanding BIPOs.
For simplicity, assume that the BIPOs have a promised perpetual interest payment M per period, and that this payment is such that the firm can not default at t = 1.
Let |D.sub.p~ denote the value of the BIPOs at t = 0.
This was something no woman would ever have undertaken in precolonial days as documented by Horndasch ("Kain samting i no bin kamap bipo
, nogat tru'), when a woman in the Finschhafen area had to remain in the village and be accompanied to her garden by her husband (Horndasch 1999:29, my translations from Tok Pisin).