Gottfried Bank is a small bank that expects to generate net income of $120 million next year on book equity (also regulatory capital) of $750 million and is expected to grow 2% a year in perpetuity. Its current market capitalization is $ 2 billion, and you can assume that it is correctly priced. Assume a new regulatory capital regime will require the bank to increase its regulatory capital by $50 million immediately, and that the firm's net income next year and expected growth remain unchanged. Estimate the new price to book ratio for the firm.

Answer rating: 100% (QA)

Currently Gottfried Banks pricetobook PB ratio can be calculated as follows PB ratio Market capitali... View the full answer