1. Assuming that the average duration of the bank's assets is four years, while the average duration of its liabilities is three years, a rise in interest rates from 5 percent to 10 percent will cause the net worth of First National to _______ by _________ of the total original asset value.
Asset Liabilities
Rate sensitive $40M $50M
Fixed Rate $60M $40M
How do you solve for this problem?
2. Energy Efficiency Consulting (EEC) has three offices. The corporation has a debt-equity ratio 40 percent and makes interest payments $123,000 at the end of each year. The firm’s current equity cost of capital is 19 percent. Each of EEC’s offices estimates annual sales of $1.3 million, annual cost of goods sold of $670,000, and annual total general and administrative costs $405,000. The corporate tax rate is 40%.
If you assume these business conditions will remain the same forever and you have determined that the value of the company's equity $1,947,326, what is the total value of the enterprise?
A. $3,245,543
B. $4,868,315
C. None of these
D. $3,115,722