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cash strategy.2 The two scenarios for the zero-cash strategy
were outlined as follows:
Scenario 1 - Constant Loan Interest Scenario. In this
scenario, it is assumed that Winn-Dixie's appetite for
interest deductions remains large, and policy interest
is charged at 11.06% throughout the life of the COLI
Pool. This scenario results in the largest amount of
earnings possible.
Scenario 2 - Reducing Loan Interest Scenario. In this
scenario, Winn-Dixie's appetite for interest deductions
is assumed to reduce over time. To adjust to the
change in circumstances, the interest rate under the
COLI Pool policies is reduced to 8% after the fifteenth
year. This scenario generates a somewhat smaller tax
arbitrage, but the resulting earnings are nevertheless
significant.
Included in the revised proposal memorandum dated January 27,
1993, were projections of petitioner's profit and loss, cash-
flow, and balance sheet balances under scenario 1, the constant
loan interest rate scenario, for the years 1993 through 2052.
The projections were based on the assumption that premiums paid
by petitioner would be financed by policy loans in all years
except years 4 through 7. In the years 4 through 7, inclusive,
premiums were to be paid using funds from policy withdrawals.
The constant loan interest rate (scenario 1) projections included
in the January 27, 1993, memorandum are attached as appendix A.
2The Jan. 27, 1993, revised proposal assumed a pool covering
38,000 employees with an average premium of $3,000 per employee.
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