Given That 25 Percent of the Loans Have Been Identified

question 54

Multiple Choice

$\begin{array}{lccc} \text { Securities (at par) } & \text { \$ 250 Deposits}& \$975 \\ \text { Loans (at par) } & \text { \$ 760 Capital} & \$ 35\end{array}$
Given that 25 percent of the loans have been identified as problem loans,and if historical cost accounting methods allow the bank to write down only 10 percent of the problem loans,what will be the book value of capital?

• A)$35 million.
• B)-$155 million.
• C)$16 million.
• D)-$7 million.

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Definitions:

Annual Cash Inflows

The total amount of money received by a company within one year from its various operational and financial activities.

Oil Production

The extraction of crude oil from the earth, which is later refined and used in the production of various energy products and other materials.

Opportunity Cost

The sacrifice of potential gains that could have been obtained from unchosen options.

Cost of Capital

The required return necessary to make a capital budgeting project, such as building a new factory, worthwhile.