How does the company compare with the average capital

Reference no: EM13260873

Your bank is considering purchasing a finance company. Your supervisor provides you the following financial information:

Tasks:

What would be the typical amount held as reserve for loan losses?

What would be the typical amount held as business loans?
How much commercial paper would be expected for this company?
How much in bank loans would be expected for this company?
How does the company compare with the average capital-to-total-asset ratio of 11 percent?
After reviewing the firm's position relative to Table 1, what would you recommend to your management regarding the purchase of this finance company?
What economies of scale would you expect if your bank purchased this finance company?
What economies of scope would you expect if your bank purchased this finance company?
What is the difference between the risk for the finance company and for the bank?

•What advantages, if any, can the bank gain by purchasing the finance company and using it to own productive assets, such as computers, and leasing such assets to the parent company, the bank?

Assets ($ millions)
Consumer loans		60.0
Business loans		140.0
Real estate loans		50.0
Less reserves for loan losses		20.0
Other assets		50.0
Total assets		280.0
Liabilities ($ millions)
Bank loans		35.0
Commercial paper		130.0
Owed to parent		22.0
Debt not elsewhere		44.0
Other liabilities		19.0
Total liabilities		250.0
Equity		30.0
Total liabilities and equity		280.0

Reference no: EM13260873

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