Question

Nighthawk Steel, a manufacturer of specialized tools, has $5,400,000 in assets. Temporary current assets $2,800,000 Permanent current assets 1,590,000 Capital assets 1,010,000 Total assets $5,400,000 Short-term rates are 12 percent. Long-term rates are 17 percent. (Note that long‐term rates imply a return to any equity). Earnings before interest

Answer 1

The net worth of a bank is defined as assets minus liabilities, with positive net worth indicating financial health. A loan issued by a bank is considered an asset, leading to increased deposits and reserves for the bank receiving the deposit. Banks must keep a fraction of deposits as reserves, but can lend the rest.

Step-by-step explanation:

The net worth of a bank is an essential indicator of its financial health and is calculated by subtracting the total liabilities from the total assets. For instance, if the Safe and Secure Bank has $11 million in assets and $10 million in liabilities, its net worth will be $1 million. A positive net worth signifies a financially healthy bank, whereas a negative net worth would imply the bank cannot fulfill all depositor withdrawals.

When Singleton Bank issues a $9 million loan to Hank's Auto Supply, this loan is recorded as an asset because it will generate interest income. When Hank deposits this amount into his checking account with First National, the bank's deposits increase by $9 million as do its reserves. As per regulatory requirements, First National must hold 10% of this as required reserves but can loan out the remainder.