Question:Second National Bank is forecasting a return on equity of 15 percent for this year. The boardof directors wants to maintain its current policy of paying the bank's stockholders 40 percentof any net earnings the bank will earn. How fast can the bank's assets grow this year withoutjeopardizing its ratio of capital to assets? A. 15 percent B. 9 percent C. 8 percent D. 6 percentE. None of the options is correct.Question:The Steiben Company has an ROE of 14.0 percent and a payout ratio of 30 percent. What isthe company's sustainable growth rate?

2).Sustainable growth rate = (ROE * b ) / ( 1 - ( ROE * b )Here , we knowROE = 14%Retention ratio…

Answered: Question: Second National Bank is…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question 01: Base Plastics Inc. has a B of 0.90. If the government treasury-bils are giving a return of 3%; and if the market is giving a returm of 9%, what is the expected rate of return on Base Plastics' shares? Question 02: You have invested $36,000 in a project. The expected year end cash flows are $15,000; $11,000; $12,000, and $14,000. The discount rate is 9%. a. Calculate the payback period b. Calculate the discounted payback period
A bank is considering a debt-for-equity swap to slavage a $5 million loan that is in default. They expect to recover $2.7 million after liquidation ane legal fees. A turnaround expert has recommended the following cassh flow analysis if the bank chooses the debt-for-equirt swap. Initial Investment $5,000,000 in year 0 Expected cash flows after turnaround $1,750,000 in years 2-6 Sale of Equity (Exit) $3,500,000 in year 6 Equity ownership 70% Cost of capital 12% Should they engage in the debt-for-equity swap? A Yes, they should engage in the debt-for-equity swap B No, they should not because the NPV after the turnaround is greater than the liquidation value C Yes, they should engage in the debt-for-equity swap only if the cost of capital is 10% D No, they should not engage in the…
Question 2: National bank is an all-equity firm with an after-tax operating income of $350 million per annum; it has 200 million outstanding shares. The firm needs $180 million to meet its annual reinvestment target. The firm expects after-tax operating income to grow at the rate of 5% per annum indefinitely and the cost of capital to remain at its current rate of 12% in the foreseeable future. Required: Estimate the market value of the firm and total value per share accruing to existing shareholder, assuming that the company pays all of its free cash flows as dividend.
10. If the company sold a new issue of bonds, it will increase cash balance even though it has negative cash flow last year. If your answer is false, what is the correct answer: 83
Based on the information above,(a) Do you agree that REC Bank’s net worth will increase when interest rate rises? Justify your answer with an appropriate analysis. (b) Evaluate the impact of reducing interest rate from 10 percent to 8 percent on the net worth of REC Bank.
PJ Morgan Bank has bank capital equal to 10% of total assets. Most of its deposits are short-term and adjustable rate. PJ Morgan's assets are long maturity and fixed rate. What is true of the bank? |- Bank capital will fall below 10% of total assets if interest rates increase. II - Bank profits will increase if interest rates drop. III - The bank will have to borrow from the Fed if interest rates increase. IV - The bank has a positive gap. O ,Il and IV O , II, II and IV O l and Il only O , II, and IV
1.a Company A is reviewing an acquisition of Company B, which is currently in an intensive investment phase and will not change its dividend policy for the next 4 years. An annual $2.00 dividend is paid by Company B. Four years later, Company B should enjoy the benefits of investment and the dividends are expected to grow by 30% annually for 3 more years. After that, dividend will stabilize at 2% growth per year forever. If the proper discount rate for company of similar risk level should be 11% per year, what is the fair price of Company B's share (to 2 decimal places) ? Show your workings clearly. b. Explain the result if the growth rate is equal to, or greater than the market rate of return. What exactly is the market rate of return? c. P/Es (Price Earning ratios) do not really indicate anything about a company. Explain.
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For TV Inc., assume you are given the following details: i. Average return on government securities is 1.2 % ii. Market risk premium is 4.3% I. Stock beta is 0.98 iv. First three years of free cash flows are $20, $18 and $10 millions. v. After year 3, there will be 2 % perpetual growth in free cash flows indefinitely. Calculate the present value of equity. Show your steps.

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