20-134 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?

Question

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The book value of capital is calculated by considering the write-down of problem loans. If 25% of loans are problem loans and only 10% of these can be written down, the impact on capital needs to be calculated accordingly. The correct calculation leads to a book value of $16 million.

20-134 Given That 25 Percent of the Loans Have Been