Systemic risk measures-probable bank failure


Question1. Generic Health Services has target capital structure of 30 percent debt and 70 percent equity. Its cost of debt estimation is 10 percent, and its cost of equity estimate is 16 percent. It pays federal, local taxes, and state at a 40 percent marginal rate. What is firm's corporate cost of capital?

Question2. Berkshire's current stock price is $25, its next per share dividend (supposed to be paid annually) is forecasted to be $1.00, and analysts anticipate the company to grow at a stable annual rate of 10 percent. What is the stock's expected rate of return?

Question3. Systemic risk measures the probability and extent of negative effects to the larger body. For instance, the government has a record of intervening in the event of a probable bank failure; the government’s larger concern is the negative impact on bank customers. Some call this a government bail-out.

Discuss the consequence on stock market investor confidence must bank customers, individuals and businesses alike, lose access to savings and undergo a loss of future purchasing power because of a bank failure.

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Financial Accounting: Systemic risk measures-probable bank failure
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