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Among the many laws enacted that affect commercial bank, two important ones are the Financial Services Modernization Act (FSMA) and the Dodd-Frank Act (DFA).
a) What were the circumstances that led to these laws being passed?
b) Summarize the arguments both for and against making changes to these two Acts
c) What are the major differences in these laws from major banking Acts passed from the 1980 through 1991?
Clifford, Inc., has a target debt-equity ratio of .71. Its WACC is 8.5 percent, and the tax rate is 34 percent. If the company's cost of equity is 11.1 percent, what is its pretax cost of debt? If the aftertax cost of debt is 5.3 percent, what is the..
Betty Bronson has just retired after 25 years with the electric company. Her total pension funds have an accumulated value of $280,000, and her life expectancy is 16 more years. Her pension fund manager assumes he can earn a 12 percent return on her ..
Consider a financial model with two trading times {0,1}, a single stock S that pays no dividents, and a bank. At t=0, we can buy or sell any number of shares of the stock at the price S0 = $40 per share. at t=1 the value of one share of stock will be..
When production yield is uncertain, what does this suggest in terms of how much of a growing crop to hedge? Is this issue relevant for a storage hedge? Is this issue relevant for a livestock hedge? Explain why.
In the Discounted Cash Flow (DCF) valuation procedure:
Britton Industries has operating income for the year of $3,600,000 and a 35% tax rate. Its total invested capital is $18,000,000 and its after-tax percentage cost of capital is 7%. What is the firm’s EVA? Graser Trucking has $22 billion in assets, an..
The operating cycle is the period from inventory purchase until the receipt of cash. Different company characteristics generally define the type of operating cycle that a firm experiences. Five different types of companies are: 1) A convenience store..
What is the expected rate of return?
Antiques R Us is a mature manufacturing firm. The company just paid a $8 dividend, but management expects to reduce the payout by 7 percent per year indefinitely.
You find a zero coupon bond with a par value of $10,000 and 30 years to maturity. The yield to maturity on this bond is 5.2 percent. Assume semiannual compounding periods.
Pete’s, Inc. recently paid $4.00 to their shareholders as the annual dividend. The company also announced that future dividends will be increasing at a constant rate of 4.5 percent. If you require a 12.5 percent rate of return, how much are you willi..
Stock has a required return of 12%; the risk-free rate is 3.5%; and the market risk premium is 6%. What is the stock's beta? If the market risk premium increased to 7%, what would happen to the stock's required rate of return? Assume the risk-free ra..
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