PART A PROBLEM SOLVING QUESTIONS wwwww 1. The cost of establishing a new ATM booth is $80,000 which has a cost of capital of 8%. The bank estimates that this will lead to a cost reduction of $1.8 per cash transaction and is expected to be in use for the next 5 years with number of cash transactions processed each year from year one to year five to be 8,000, 12,000, 16,000, 22,000 and 28,000 respectively. Should the ATM booth set up this new ATM? Justify your answer. (6 Marks) 2. Eastern Bank Limited (EBL) is considering setting up a new branch either in Dhanmondi or in Khilgaon. At present, the existing facilities and assets of EBL are earning a return of 10% at a standard deviation of 5%. Based on the information provided in the table below, in which location should the new branch be set up? Justify your answer. (18 Marks) Percentage of total assets invested in the new branch Expected return on proposed new branch Standard deviation of the proposed new branch's expected return Correlation coefficient between the expected return from the proposed new branch and the returns of the other assets of the bank Dhanmondi Khilgaon 15% 12% 20% 18% 14% 10% -0.60 -0.75 PART A PROBLEM SOLVING QUESTIONS wwwww 1. The cost of establishing a new ATM booth is $80,000 which has a cost of capital of 8%. The bank estimates that this will lead to a cost reduction of $1.8 per cash transaction and is expected to be in use for the next 5 years with number of cash transactions processed each year from year one to year five to be 8,000, 12,000, 16,000, 22,000 and 28,000 respectively. Should the ATM booth set up this new ATM? Justify your answer. (6 Marks) 2. Eastern Bank Limited (EBL) is considering setting up a new branch either in Dhanmondi or in Khilgaon. At present, the existing facilities and assets of EBL are earning a return of 10% at a standard deviation of 5%. Based on the information provided in the table below, in which location should the new branch be set up? Justify your answer. (18 Marks) Percentage of total assets invested in the new branch Expected return on proposed new branch Standard deviation of the proposed new branch's expected return Correlation coefficient between the expected return from the proposed new branch and the returns of the other assets of the bank Dhanmondi Khilgaon 15% 12% 20% 18% 14% 10% -0.60 -0.75