Xacc 280 Week 2 Case Analysis Of Honeywell

Despite the bleak economic outlook, by the end of the third quarter 2008, Honeywell’s sales had not been impacted much. They checked on orders and they all looked good, everything was holding up.

Equity Capital: represents the risk capital staked by investors through the purchase of a company’s stock.

1. a) A bank has risk-weighted assets of $175 and equity of $12.5. If regulators require a minimum risk-weighted capital ratio of 5% given the current level of equity, how many new assets with a 100% risk weight can the bank add? How many with a 50% risk weight? b) If the bank had 20% more equity, how many new assets with a 100% risk weight could the bank add? How many with a 50% risk weight? How does having more equity affect a bank's ability to grow? How is this growth affected by the riskiness of the bank's assets?

Accordingly, banking regulators assessed minimum values for each of these key measures. At 2007, “adequately capitalized” (i.e., minimum) levels were 4% for the Tier 1 capital ratio, 8% for the total capital ratio, and 3% for the leverage ratio; “well capitalized” levels were 6% for Tier 1 capital, 10% for total capital, and 5% for leverage. Well capitalized banks qualified for, among other things, lower premiums assessed by the Federal Deposit Insurance Corporation (FDIC). Undercapitalized banks (e.g., below the 8% minimum required total capital) received a warning from the FDIC; continued violation of capital requirements triggered further regulatory costs, including intervention or (in the extreme) takeover by government regulators.

In addition to the above the internal incentive to bank should be reduced by requiring greater capital requirements as well as improving upon the definition of what qualifies to be capital. Further in line with the answer to question 3, risk management systems in financial institutions need to be redefined and strengthened to more comprehensively identify, evaluate, manage and monitor risks.

Basel III is a global comprehensive collection of restructured regulatory standards on bank capital adequacy and liquidity. It was developed by the Basel Committee on Banking Supervision to strengthen the regulation, supervision and risk management of the banking sector (bis.org, 2010). It introduces new regulatory requirements on bank liquidity and bank leverage in response to the financial downturn caused by the Global Financial Crisis. Stefan Walter, Secretary General of the Basel Committee on banking supervision said in November 2010:

7. Debt to capitalization = Long-term Debt in Balance Sheet / Long term debt + Net Assets in

Brubaker Air Conditioning & Refrigeration Service is a full-service HVAC contracting company that is located in Corpus Christi, Texas. Brubaker Air Conditioning & Refrigeration Service is serving the Nueces County and Corpus Christi, Texas. This HVAC contracting establishment possesses more than 30 years of experience in the industry. Brubaker Air Conditioning & Refrigeration services the residential, commercial, industrial, and marine. Their services include electrical configuration, new construction, new installation, preventative maintenance, service repair, system replacement, system change-out, duct cleaning, and evaporator coil cleaning. Brubaker Air Conditioning & Refrigeration Service is operating 7 days a week. This HVAC contracting

a) Weighting of Capital Structure: Use of book values of capital rather than the market values

“Tier 1 capital is composed of common equity plus trust-preferred securities minus intangible assets. Tier 2 capital is a bank’s loan-loss reserve amount plus other qualifying securities (e.g. subordinated debt and preferred stock) plus net unrealized gains on marketable securities. Total capital is the sum of Tier 1 and Tier 2 capital” (Melicher and Norton).

The primary measure used by regulators and analysts to measure a bank’s capital strength is the Tier 1 capital ratio. Analyzing this ratio indicates the strength and the bank’s ability to

The course project involved developing a great depth of knowledge in analyzing capital structure, theories behind it, and its risks and issues. Before I began this assignment, I knew nothing but a few things about capital structure from previous unit weeks; however, it was not until this course’s final project that came along with opening

Industry analysis is a tool that facilitates a company's understanding of its position relative to other companies that produce similar products or services.

Capital structure is defined as the mix of the long-term sources of funds that a firm use. It is composed of equity, debt securities and affect long-term financing of the entity. It is made up by shareholder’s funds, long-term debt and preference share capital. The capital structure mostly focus on the proportions of debt and equity displayed in the company financial statements, especially in the balance sheet (Myers, 2001). The value of a firm can be calculated by the sum of the value of its firm’s debt and equity.

Week seven of the course focused on how managers can successfully develop sets of tools to help decide what the adequate capital structure of their company should be. This week was very interesting because the class was able to discuss how financial markets and related institutions contributed to the overall economy of various countries. At the end of week seven, the class learned more business theories related to capital structure and the importance of financial markets and institutions to the various economies (“Overview & Objectives”, n.d.).