The following information is available on the average costs of the three major banks in a given local market.Bank A has assets of $10 million and average costs are 15 percent, Bank B has assets of $20 million and average costs of 13 percent while Bank C has assets of $30 million with average costs of 12 percent.Average costs are measured as a proportion of total assets. Bank B plans to acquire Bank A and in the process cut costs by $100,000.What is the combined bank's average costs?
A)12.00 percent.
B)12.67 percent.
C)13.00 percent.
D)13.33 percent.
E)15.00 percent.

Question

Quizplus · Accepted Answer

The combined assets of Bank A and Bank B will be $30 million ($10 million + $20 million). The total costs before the cost cut are $1.5 million for Bank A (15% of $10 million) and $2.6 million for Bank B (13% of $20 million), totaling $4.1 million. After the $100,000 cost cut, the total costs become $4 million. The average cost is then $4 million divided by $30 million, which equals 13.33 percent.

The Following Information Is Available on the Average Costs of the Three