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In the past decade, several large "money center" banks recorded huge additions to their loan loss reserve. For example, Citicorp recorded a one-time addition to its loan loss reserve totaling about $3 billion. These additions to loan loss reserves led to large net losses for these banks. While most analysts agree that additional reserves were warranted, many speculated the banks recorded more reserve than necessary.
Required:
a. Why might a bank choose to record more loan loss reserve than necessary?
b. Explain how overstated loan loss reserves can be used to manage earnings in future years.
Discuss the pros and cons of using the past performance of stocks and bonds as a means of predicting future performance, and make at least one recommendation for making this technique more accurate.
Suppose your stock portfolio's beta is 1.40 and it's currently valued at $1 million. The S&P 500 index is currently at 2,000. The riskfree rate is 4% per annum and the dividend yield on both the index and your portfolio is 0%. What action is ..
Its cost of equity is 19 percent, the cost of preferred stock is 6.5 percent, and the pre-tax cost of debt is 7.5 percent. What is the firm's WACC given a tax rate of 34 percent?
Given the following information, determine the beta coefficient for Stock J that is consistent with equilibrium: rJ = 13.5%; rRF = 6.15%; rM = 10.5%. Round your answer to two decimal places.
invested for total 6 years at 6% compounded semi-annually for first four years followed by 12%compounded quarterly for final 2 years.
The relevant tax rate is 30 percent. What is the after tax cash flow from the sale of this asset?
What is an interest tax shield? How does it increase the size of the "pie" for after-tax income stockholders? Explain. (Hint: construct a simple numerical example showing how financial leverage affects the total cash flow available to debt and equ..
Dell a leading computer technology organization has established a high ethical standard of doing business with customers, vendors, stakeholders, suppliers and shareholders.
Compare and discuss the different patterns of futures price quotes amongst the selected commodities using some specific examples?
You want to have $25,000 in your savings account eight years from now, and you're prepared to make equal annual deposits into the account at the end of each year. If the account pays 4.75 percent interest, what amount must you deposit each year?
Computation of firm's weighted average cost of capital considering marginal tax rate and what is the firm's weighted average cost of capital.
After all of these changes, what will be the difference in the required returns for HRI and LRI? Round your answer to two decimal places.
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