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Value of a savings institution depends on its expected cash flows and required rate of return
V = f [ E(CF), k] V = Change in value of the institution k = Change in required rate or return Where: E(CF) = Change in expected cash flows +
Exhibit 22.6 Framework for Valuing a Savings Institution Economic Growth Expected Cash Flows to Be Generated by the Commercial Bank Required Return by Investors Who Invest in the Commercial Bank Inflation Money Supply Budget Deficit Risk-Free Interest Rate Risk Premium on the Commercial Bank Value of the Commercial Bank Abilities of the Savings Institution’s Managers Industry Conditions (such as Regulations, Technology , and Competition)