a) Financial Fitness Bank has the following income statement. Income Statement (in millions) Total interest income $6,800 Total interest expense 2,960 3,840 Net interest income Provision for loan losses Noninterest income 390 1,370 Noninterest expense 1.850 Income before taxes $2,970 Taxes 891 Net income $2,079 For the Financial Fitness Bank, the total assets is $26,000 million. Calculate the following ratios. Please show each step of your calculation. i) Return on assets (ROA). [3 marks] ii) Total operating income. [3 marks] iii) Profit margin. [3 marks] iv) Noninterest expense ratio. [3 marks] v) Overhead efficiency. [3 marks] BUS201 (2021) Page 3 b) Suppose that a bank has equity of $600 million, interest expense of $190 million, provision for loan loss (P) of $28 million, noninterest income of $25 million, noninterest expense of $45 million and a tax rate of 33%. What is the minimum total interest income required to give a return on equity (ROE) of 14%? Please show each step of your calculation. [10 marks] c) Bank Beta reported an equity multipler ratio of 3.75 at the end of year 2019. If the bank's total debt at the end of year 2019 was $20 million, how much of its assets were financed with equity? Please show each step of your calculation. [6 marks] d) Commercial banks expand internationally; however, the expansion has three major disadvantages. Please explain the three different disadvantages for the international expansion of commercial banks. [9 marks] [Total marks: 40 marks] a) Financial Fitness Bank has the following income statement. Income Statement (in millions) Total interest income $6,800 Total interest expense 2,960 3,840 Net interest income Provision for loan losses Noninterest income 390 1,370 Noninterest expense 1.850 Income before taxes $2,970 Taxes 891 Net income $2,079 For the Financial Fitness Bank, the total assets is $26,000 million. Calculate the following ratios. Please show each step of your calculation. i) Return on assets (ROA). [3 marks] ii) Total operating income. [3 marks] iii) Profit margin. [3 marks] iv) Noninterest expense ratio. [3 marks] v) Overhead efficiency. [3 marks] BUS201 (2021) Page 3 b) Suppose that a bank has equity of $600 million, interest expense of $190 million, provision for loan loss (P) of $28 million, noninterest income of $25 million, noninterest expense of $45 million and a tax rate of 33%. What is the minimum total interest income required to give a return on equity (ROE) of 14%? Please show each step of your calculation. [10 marks] c) Bank Beta reported an equity multipler ratio of 3.75 at the end of year 2019. If the bank's total debt at the end of year 2019 was $20 million, how much of its assets were financed with equity? Please show each step of your calculation. [6 marks] d) Commercial banks expand internationally; however, the expansion has three major disadvantages. Please explain the three different disadvantages for the international expansion of commercial banks. [9 marks] [Total marks: 40 marks]
