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administrative costs adjustments to its midmarket values. FNBC
reported the following amounts for administrative costs
adjustments (with the negative amounts decreasing the midmarket
values and the positive amounts increasing the midmarket values):
Administrative
Year Costs Adjustment
1990 ($982,000)
1991 1,934,417
1992 (524,850)
1993 (988,699)
The administrative costs adjustment’s net effect on income was to
decrease (or increase) income per books by the net increase (or
decrease) in the aggregate balance of the administrative costs
adjustment.
B. Calculation of the Adjustment
FNBC’s administrative costs adjustment reflected FNBC’s
estimate of the aggregate of: (1) Its future budgeted costs
(both direct and indirect) for its swaps business, (2) its future
budgeted costs (both direct and indirect) for the allocable
portions of the costs of the back office to manage FNBC’s swaps
to maturity, and (3) the allocable future budgeted costs of the
nontrading departments of FNBC that FNBC believed would be
necessary to support its swaps business in managing the swaps to
maturity. For purposes of the administrative costs adjustment,
all of these future estimated costs were adjusted upward by an
inflation factor and then present valued. The inflation factor
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