re commercial loans: = $17,846,000/2= $8,923,000 TOTAL COMMERCIAL LOANS:$20,570,000Total commercial loans /Assets: = 20,570,000/155,704,000= 13.21%Based on our assumption that half the “other loans” are commercial loans Niagara is just under the 15% regulation, leaving little room for expansion. Pelham has no commercial loans, which gives Niagara an immediate $3,852,000 of room for commercial lending. 15% of Pelham’s assets of $25,677,000 = $3,852,000 APPENDIX FNPV OF THE PELHAM MERGER (ROUGH ESTIMATE): Using Opportunity Cost of 10% (average equity rate of return over last 50 years):NPV = -$484 000(exchange of share capital) + -$300 000(renovations) + -$199 000/1.1 + -$7000/(1.1)^2 + $169 000/(1.1)^3 + ($197 000/0.1)/(1.1)^4(assuming incomecontinues as a perpetuity)= -$484 000 + -$300 000 + -$180 909 + -$5785 + $126 972 + $1 345 537= $501 815Using Opportunity Cost of 25% (being super conservative)NPV= -$484 000(exchange of share capital) + -$300 000(renovations) + -$199 000/1.25 + -$7000/(1.25)^2 + $169 000/(1.25)^3 + ($197 000/0.25)/(1.25)^4(assuming incomecontinues as a perpetuity) = -$484 000 + -$300 000 + -$159 200 + -$4480 + $86 528 +$322 765= -$538 387One could spend a whole paper on what the discount rate should be. In the short-term it should probably be around the 15% range but in the long run it should level out to historical level of around 10%. Our intuition tells us that the NPV of half a million is the best estimate....
