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Strategies & Market Trends : Galapagos Islands -- Ignore unavailable to you. Want to Upgrade?

To: Oral Roberts who wrote (9954)	10/28/2002 10:54:23 PM
From: X Y Zebra	Respond to of 57110

you have to charge an IRS minimum interest which right now is likely higher then you could get from the bank. I believe it is assumed the lender is receiving that interest whether they are or aren't exactly, that was my point, I do not see why corporations would be treated differently. the economics of this because it allows IBM to keep plants open and saves them money by turning inventory. I would suppose that their cost of capital that applies to build the additional product is covered by their profit margin. It is true that it would benefit NOT to have the plant and equipment idle. However... why have the plant and equipment in the first place if you are not selling stuff in the first place. I am sure it is not that simple. The key point is that their profit margin MUST cover whatever additional operational cost they incur by producing these 0% financed items. I think the problem becomes how efficient the firm is. To put a simple example, Dell will not build a computer unless they have sold it (at least that is the principle of "on time inventory"). If the increase in sales and subsequent profit margin covers the capital cost to manufacture, in spite of the 0% interest, then it would seem to be ok... If this is a mere "glitch" in the economy, (i.e. demand will return soon), then it seems to be ok. If on the other hand consumption will remain low or non existant, then the 0% financing motivation will only last so much. and yes, it could mean other stuff... i do not have all the fact in front of me.