June Bug Bank and Trust has received $750 million in total funding, consisting of $200 million in checkable deposit accounts,
June Bug Bank and Trust has received $750 million in total funding, consisting of $200 million in checkable deposit accounts, $400 million in time and savings deposits, $100 million in money market borrowings, and $50 million in stockholders’ equity. Interest costs on time and savings deposits are 2.50 percent, on average, while noninterest costs of raising these particular deposits equal approximately 0.50 percent of their dollar volume. Interest costs on checkable deposits average only 0.75 percent because many of these deposits pay no interest, but noninterest costs of raising checkable accounts are about 2 percent of their dollar total. Money market borrowings cost June Bug an average of 2.75 percent in interest costs and 0.25 percent in noninterest costs. Management estimates the cost of stockholders’ equity capital at 12 percent before taxes. (The bank is currently in the 35-percent corporate tax bracket.) When reserve requirements are added in, along with uncollected dollar balances, these factors are estimated to contribute another 0.75 percent to the cost of securing checkable deposits and 0.50 percent to the cost of acquiring time and savings deposits. Reserve requirements (on Eurodeposits only) and collection delays add an estimated 0.25 percent to the cost of the money market borrowings. (a) Calculate June Bug’s weighted average interest cost on total funds raised, figured on a before-tax basis. (b) If the bank's earning assets total $700 million, what is its break-even cost rate? (c) What is June Bug's overall historical weighted average cost of capital?
tr mso height source auto col mso width source auto br mso data placement same cell style0 mso number format General text align general vertical align bottom white space nowrap mso rotate 0 mso backgr…View the full answer
Currently, I am PhD scholar with Indian Statistical problem, working in applied statistics and real life data problems. I have done several projects in Statistics especially Time Series data analysis, Regression Techniques.
I am Master in Statistics from Indian Institute of Technology, Kanpur.
I have been teaching students for various University entrance exams and passing grades in Graduation and Post-Graduation.I have expertise in solving problems in Statistics for more than 2 years now.I am a subject expert in Statistics with Assignmentpedia.com.