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Challenge Problem This problem focuses on bank capital management and various capital ratio measures. Following are recent balance sheet accounts for Prime First National Bank. Cash assets $ 17 million Demand deposits $50 million Loans secured by Time & savings real estate 40 deposits 66 Commercial loans 45 Federal funds purchased 15 Government Trust-preferred securities owned 16 securities 2 Goodwill 5 Bank fixed assets 15 Owners' capital 5 Total assets $138 million Total liabilities $138 million and owners' capital All amounts are in millions of dollars. Note: The bank has loan-loss reserves of $10 million. The real estate and commercial loans shown on the balance sheet are net of the loan-loss reserves. a. Calculate the equity capital ratio. How could the bank increase its equity capital ratio? b. Risk-adjusted assets are estimated using the following weightings process: cash and government securities .00; real estate loans .50; commercial and other loans 1.00. Calculate the risk-adjusted assets amount for the bank. c. Calculate the Tier 1 Ratio based on the information provided and the risk-adjusted assets estimate from Part b. d. Calculate the Total Capital (Tier 1 plus Tier 2) Ratio based on the information provided and the risk-adjusted assets estimate from Part b. e. What actions could the bank management team take to improve the bank's Tier 1 and Total Capital ratios?
Describe how financial statements, cash flow, risk, return, and capital asset pricing model, stocks, stock valuation and stock market equilibrium are significant to one's work profession and business?
Assume Brown-Murphies faces a flotation cost of 10 percent on new equity issues.
What should the firm set as the required rate of return for the project? 15.39 percent 13.92 percent 12.54 percent 17.33 percent 17.06 percent
A frequent occurrence is for an IT acquisition project that is behind schedule and over budget to continue out of control till the costs become intolerable or some other event causes it to end, resulting in much waste of resources with few or no b..
Page Enterprises has bonds on the market making annual payments, with nine years to maturity, and selling for $966. At this price, the bonds yield 6.80 percent. What must the coupon rate be on the bonds?
If the firm's EBITDA was $5,000 and its fixed costs were equal to $1,750, then what was Swan's depreciation and amortization expense during the same period?
The cost of capital is 14 percent, and the firm's tax rate is 40 percent - Estimate the present value of the tax benefits from depreciation
Four economic classifications of mergers are (1) horizontal, (2) vertical, (3) conglomerate, and (4) congeneric. Explain the significance of these terms in merger analysis
Using Costco wholesale company, incorporate the effect of the Employee Stock Option consider into the common equity valuation. Be sure to plan both the forecasted ESO grants and outstanding ESOs.
Buchanan Corporation is refunding $12 million worth of 10% debt. The corporation's tax rate is 35%. The call premium is 9 percent.
Year forecast of estimated future cash flows
Explain how a net present value (NPV) profile is used to compare projects. How does this compare to internal rate of return (IRR)? How does reinvestment affect NPV and IRR?
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