Question
Given the following balance sheet at end of 2012 and income statement for 2012 for commercial bank ABC: a.) Determine if the equity capital is
- Given the following balance sheet at end of 2012 and income statement for 2012
for commercial bank ABC:
a.) Determine if the equity capital is enough to cover the pre-tax operating income?
b.) What is the maximum loan loss that would exactly use up all equity capital
given the corporate tax rate is 40%.
Balance Sheet for Bank ABC 2012-12-31
Asset Liab & Equity
Cash 4% Deposit 88%
Marketable securities 21% Sub long-term-debt 7%
Loan 65%
Fixed assets 10% Equity capital 5%
Total assets 100% Total liab & equity 100%
Income Statement 2012
Net interest income 5.0%
Loan losses (4.2)%
Non-interest income 1.2%
Non-interest expenses (0.7%)
Pre-tax income 1.3%
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