Question: Monarch Bank and Trust has received $800 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 $100 million in stockholders' equity. Interest costs on time and savings deposits are 3.75 percent, on average, while noninterest costs of raising these particular deposits equal approximately .75 percent of their dollar volume. Interest costs on checkable deposits average only .75 percent because many of these deposits pay no interest, but noninterest costs of raising checkable accounts are about 3 percent of their dollar total. Money market borrowings cost Monarch an average of 4.25 percent in interest costs and .25 percent in noninterest costs. Management estimates the cost of stockholders' equity capital at 16 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 .50 percent to the cost of acquiring time and savings deposits. Reserve requirements (on Euro deposits only) and collection delays add an estimated .25 per-cent to the cost of the money market borrowings.
a. Calculate Monarch'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 Monarch's overall historical weighted average cost of capital(WACC)?