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Suppose Melvin's Bank starts with the balance sheet in Table (a) and the income statement in Table (b). Show how the balance sheet and income statement change in each of the following scenarios. Also calculate the new ROA, ROE, and rate-sensitivity gap.
a. The bank issues $20 of new stock and uses the proceeds to make loans.
b. Britt moves $25 from his savings account to his checking account.
c. The bank is hired to manage the assets of a wealthy person, for which it is paid $10 a year.
d. The bank lends $5 of reserves to another bank in the federal funds market. (Assume the federal funds rate is the same as the Treasury bill rate.)
e. The bank replaces $10 of its loans with floating-rate loans, which pay the Treasury bill rate plus 2 percent.
Deployment Specialists pays a current (annual) dividend of $1 and is expected to grow at 20% for two years and then at 3% thereafter. If the required return for Deployment Specialists is 10.0%, what is the intrinsic value of Deployment Specialists st..
Sorenson Inc. has sales of $5,712,000, a gross profit margin of 27.45 percent, and inventory of $937,000. What are the company’s inventory turnover ratio and days’ sales in inventory?
Find the rate on a pure discount loan hedged with a long FRA if the loan is for $10 million and matures in 30 days, the FRA is 30-day LIBOR, the fixed rate on the FRA is 4 percent, and LIBOR at the time the loan is taken out is 5 percent.
Lee plans to retire in 22 years with a nest egg of $8M. He has already saved $500,000 in an investment account that generates a nominal rate of return of 12%, compounded quarterly. Numerically show that whether Lee’s investment account balance will r..
A firm's preferred stock pays an annual dividend of $4, and the stock sells for $73. Flotation costs for new issuances of preferred stock are 7% of the stock value. What is the after-tax cost of preferred stock if the firm's tax rate is 35%?
You have been following a company, Marathon Capstone, Inc., that is about to go public this afternoon. You are fairly certain that the company will not pay dividends for the first eight years of its operations. You forecast that the tenth year's divi..
RW Corp. needs to replace an old lathe with a new, more efficient model. The old lathe was purchased for $50,000 nine years ago and has a current book value of $5,000. (The old machine is being depreciated on a straight-line basis over a ten-year use..
Six-month call options with strike prices of $40 and $45 cost $5 and $2, respectively. What is the maximum gain when a bull spread is created from the calls? What is the maximum loss when a bull spread is created from the calls? What is the maximum g..
For this piece of your project, create operational and financial components for the strategic planning process for NURSING HOMES. Consider both your internal and external analyses, but focus on your selected organization's strengths and weaknesses. T..
Frank Smith Plumbing Data Needed foranalysis: Project Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year -7 Year- 8 Cost of Capital (borrowing) 7.5% Cost of Truck $185,000 Cost of additional equipment attached to truck $25,000 Tax rate 25% Annual Before ..
During the year a company increased the production capacity by acquiring more machines. Compute company's capital expenditures during the year.
A $676,351 warehouse if being purchased by your company. The deal requires a down payment of 118,704 with the remainder of the purchase price paid over 20 years, payments in advance. The annual interest rate applicable is 5.32. What monthly payment i..
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