Question: A group of businesspeople from Scott Island are considering filing
A group of businesspeople from Scott Island are considering filing an application with the state banking commission to charter a new bank. Due to a lack of current banking facilities within a 10-mile radius of the community, the organizing group estimates that the initial banking facility would cost about $3.3 million to build along with another $500,000 in other organizing expenses and would last for about 25 years. Total revenues are projected to be $400,000 the first year, while total operating expenses are projected to reach $160,000 in year 1. Revenues are expected to increase 4 percent annually after the first year, while expenses will grow an estimated 2 percent annually after year 1. If the organizers require a minimum of a 10 percent annual rate of return on their investment of capital in the proposed new bank, are they likely to proceed with their charter application given the above estimates?
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