If FNBNA is expecting a $20 million net deposit drain and the bank wishes to fund the drain by borrowing more money, how much will pre-tax net income change if the borrowing cost is the same as on its existing borrowed funds?

Question

Quizplus · Accepted Answer

Based on the given information, FNBNA is expecting a $20 million net deposit drain. To fund this drain, they plan to borrow more money. The borrowing cost is expected to be the same as on its existing borrowed funds, which means the cost of borrowing is 7%. Given this information, the pre-tax net income will decrease by $600,000 (20 million x (4% - 7%)). Therefore, the best choice is D.

If FNBNA Is Expecting a $20 Million Net Deposit Drain