1. A bank has $500 million in checking deposits with interest and noninterest costs of 6%, $250 million in savings and time deposits with interest and non-interest costs of 14%, and $250 million in equity capital with a cost of 25%. The bank has estimated that reserve requirements, deposit insurance fees and uncollected balances reduce the amount og money avaiable on checkign deposits by 15% and on savings and time deposits by 4%. What is the bank's before tax cost of funds?
PLEASE SHOW WORKING
a. 14.65%
b.15.00%
c.15.74%
d. 13.29%
e. 12.75%.
2. Which of the following statements is CORRECT?
a. One drawback of the payback method is that this method does not consider cash flows that occur beyond the payback period. b. If a project's payback is a positive number, then the project should be accepted because it must have a positive NPV. c. The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem. d. The shorter a project's payback period, the less desirable the project is normally considered to be by this criterion.