(a)organization strategy and industry practice, the bank current capital design is exceptionallyleveraged. Barakah Islamic Bank's President, Dato' Mirzan Daud Bakar has announced that thenew branch project will be financed by 49 percent debt from the bank Earnings Before Interest andTax (EBIT) which is RM10,540,500. The bank cost of equity capital is 17.8 percent and 7.3 percentof debt outstanding. The bank has corporate tax at 28.75 percent.Barakah Islamic Bank is planning to open another branch. With implementation ofi. Determine the Weightage Average Cost of Capital (WACC) of the new branch.ii. Mr Nubhan is interested to be a shareholder for the new bank branch. He has to pay a personaltax rate on share income of 12.3 percent, personal tax rate on debt income of 28.9 percent andcorporate tax of 43.98 percent. Calculate the gain from leverage for Mr. Nubhan.

The Weighted average cost of capital(WACC) refers to the financial ratio that calculates the overall…

(a) Barakah Islamic Bank is planning to open another branch. With implementation of organization strategy and industry practice, the bank current capital design is exceptionally leveraged. Barakah Islamic Bank's President, Dato' Mirzan Daud Bakar has announced that the new branch project will be financed by 49 percent debt from the bank Earnings Before Interest and Tax (EBIT) which is RM10,540,500. The bank cost of equity capital is 17.8 percent and 7.3 percent of debt outstanding. The bank has corporate tax at 28.75 percent. i. Determine the Weightage Average Cost of Capital (WACC) of the new branch. ii. Mr Nubhan is interested to be a shareholder for the new bank branch. He has to pay a personal tax rate on share income of 12.3 percent, personal tax rate on debt income of 28.9 percent and corporate tax of 43.98 percent. Calculate the gain from leverage for Mr. Nubhan.

(a) Barakah Islamic Bank is planning to open another branch. With implementation of organization strategy and industry practice, the bank current capital design is exceptionally leveraged. Barakah Islamic Bank's President, Dato' Mirzan Daud Bakar has announced that the new branch project will be financed by 49 percent debt from the bank Earnings Before Interest and Tax (EBIT) which is RM10,540,500. The bank cost of equity capital is 17.8 percent and 7.3 percent of debt outstanding. The bank has corporate tax at 28.75 percent. i. Determine the Weightage Average Cost of Capital (WACC) of the new branch. ii. Mr Nubhan is interested to be a shareholder for the new bank branch. He has to pay a personal tax rate on share income of 12.3 percent, personal tax rate on debt income of 28.9 percent and corporate tax of 43.98 percent. Calculate the gain from leverage for Mr. Nubhan.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A bank has $217 million in assets in the 0 percent risk-weight category. It has $223 million in assets in the 20 percent risk-weight category. It has $189 million in assets in the 50 percent risk-weight category and has $29 million in assets in the 100 percent risk-weight category. This bank has $28 million in Tier 1 capital and $56 million in Tier 2 capital. What is this bank's ratio of Tier 1 capital to total assets? Type your answer as percentage and not as decimal (i.e. 5.2 and not 0.052). Round to the nearest two decimals if needed. Do not type the % symbol.
Old National Bank has the following sources of funds: $ 694 million in capital and surplus, $425 million in demand deposits, $770 million in time and savings deposits, and $250 million in subordinated debt. What is the maximum dollar amount Old National Bank may lend to a single customer? Final answer only
Bank A has the following balance sheet: A ssets Reserves $50 million Liabilities Deposits $200 million Bank capital 850 million Securities $50 million Loans $150 million Bank B has the following balance sheet: A ssets Liabilities Deposits $225 million Bank capital $25 million Reserves $50 million Securities $50 million Loans $150 million 1. Both banks earn 85 million as an annual after-tax profit. Calculate ROA (return on asset) and ROE (return on equity) for both banks.
Consider a bank with the following balance sheet: Assets Liabilities Required$10 millionCheckable$120million deposits millionBank capital reserves Excess $19 million $16 reserves Loans $75 Assume that required reserves are 8%. In order to avoid insolvency, regulators decide to provide the bank with $26 million in bank capital. Assume that bad news about mortgages is featured in the local newspaper, causing a bank run. As a result, $25 million in deposits is withdrawn. Assets million Liabilities millionCheckable$95million deposits millionBank сapital Required $8 reserves Excess $22 $10million reserves $75 million 1) The bank now has a capital ratio of and the bank is a) 9.5%; well-capitalized b) 5.9%; well-capitalized c) 9.5%; in a dire capital position d) 5.9%; in a dire capital position Loans
Use the information given in Upper Midwest National Bank's balance sheet to answer the following questions. Bank's Balance Sheet Assets Liabilities and Owners' Equity Reserves $200 Deposits $1,600 Loans $800 Debt $250 Securities $1,000 Capital (owners' equity) $150 Suppose the owners of the bank borrow $100 to supplement their existing reserves. This would increase the reserves account and account. This would also bring the leverage ratio from its initial value of to a new value of Which of the following do bankers consider when deciding how to allocate their assets? Check all that apply. The total value of liabilities The size of the monetary base The riskiness of each asset the
If a bank has a positive interest-sensitive gap, one of the possible management responses would be to: wait for the interest rates to rise or be shorten asset decrease interest-sensitive increase interest-sensitive The First National Bank of Trinidad reports a net interest margin of 5.83 percent. It has total interest revenues of $275 million and total interest expenses of $210 million. What will be the bank's earning assets total? $4,717 million $3,602 million $1,115 million $3,790 million The First National Bank of Trinidad reports a net interest margin of 5.83 percent. It has total interest revenues of $275 million and total interest expenses of $210 million. This bank has earnings assets of $1,115. Suppose this bank's interest revenues rise by 8 percent and its interest expenses and earnings assets rise by 10 percent what is this bank's new net interest margin? 83 percent 09 percent 59 percent 38 percent If Fifth National Bank's asset duration exceeds its…
Star Bank has the following asset portfolio on its balance sheet (and zero off-balance-sheet business). ASSETS Cash $100 Municipal Bonds $150 Residential Mortgages $250 Commercial Loans $500 $100 $1,100 Junk Bonds Total Assets VALUE CREDIT ($million) RISK WEIGHT 0% 20% 35% 100% 150% Star Bank has $57 million in Common Equity Tier 1 (CET1) capital. What is the bank's CET1 risk-based capital ratio (assuming there is no market risk or operational risk)? Select one: a. 8.2 percent O b. 7.43 percent O c. 5.7 percent O d. 5.18 percent
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The mutual funds Division has allocated $5.0M and is currently looking for investment opportunities to invest these funds, The financial analyst suggested that all new investments be made in the oil industry, steel industry or in government bonds. The analyst identified five investment opportunities:two from the oil industry, two from the steel and government bonds. Types of opportunities Returns ABC oil 0.095 XYZ oil 0.085 Mona Steel 0.04 TNT steel 0.05 Government Bonds 0.015 For the mutual Funds Division :a) Generate the objective function b) Generate the budget constraint c) The amount invested in oil should be at least three times the amount invested in the steel industry d) The investment in ABC oil cannot be more than 50 % of total oil industry e) The investment in TNT steel should be at most 40 % of the total investment in Government Bond f) The investment in XYZ oil should be at least 20 % of the total funds available but no more than 40%of total…
4. Assume that the same net amount of 2 million, but they are structure: following banks have the different due to the capital [10] Tanto Murity ABL 12 million 90 million 102 million Deposits Bank Capital Total Liabilities and Equity MCB 85 million 17 million 102 million Reserves Loan Total Assets 12 million 90 million 102 million Deposits Bank Capital Total Liabilities and Equity 100 million 02million 102 Reserves Loan Total Assets million Which Bank is more attractive for shareholders? Which bank is riskier in case of loan depreciation at15million? Show your calculations to support your suggestions.
The mutual funds Division has allocated $5.0M and is currently looking for investment opportunities to invest these funds, The financial analyst suggested that all new investments be made in the oil industry, steel industry or in government bonds. The analyst identified five investment opportunities:two from the oil industry, two from the steel and government bonds. Types of opportunities ReturnsABC oil 0.095XYZ oil 0.085Mona Steel 0.04TNT steel 0.05Government Bonds 0.015 OECS Bank has both a loans division and mutual funds division. It has allocated $40.0M to finance its loan portfolio. Its operations manager is asked to build an LP model to help guide company decisions as to how to disburse the revolving fund across different loan categories. The operations manager garnered the following data on available types of loans based on market research of the industry: Types of Loan Interest Rate Bad Debt RatioPersonal…
Assume that an officer of ZED Bank wants to execute a transaction with the following characteristics using the risk-adjusted return on capital (RAROC) model:▪ Probability of default (PD) = 45 basis points▪ Loss given default (LGD) = 50%▪ Exposure at default (EAD) = US$ 2.0 million▪ The risk-free rate of return is 6%This is a loan to an agricultural company and the bank’s economic capital (EC) model delivers the following charge for the firm: EC of exposure = 5% of EAD, which is US$ 100,000. Assume that the bank has set a RAROC hurdle rate of 15% and this transaction has a net profit of US$ 12,000 before other adjustments.REQUIRED:Compute the bank’s risk-adjusted rate of return on the loan to an agricultural company? Now assume that the bank could also have made a loan for the same amount and net profit of US$ 12,000 before other adjustments to a chemical manufacturing firm, and that the EC = 2.5% in this case. Which loan between the two should the bank grant and why?

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