Assume that you are a banker and that each company has applied to you for a 90-day loan of $12,000. Which would you consider to be the more favorable prospect? Explain your answer fully. b. Assume that you are an investor considering purchasing all the capital stock of one or both of the companies. For which business would you be willing to pay the higher price? Do you see any indication of a financial crisis that you might face shortly after buying either company? Explain your answer fully.
Moon Corporation
JULY 31, 2011Balance sheet
July 31, 2011
AssetsLiabilities & Owners’ Equity
Cash . . . . . . . . . . . . . . . . $ 18,000Liabilities:
Accounts Receivable . . . 26,000Notes Payable
Land . . . . . . . . . . . . . . . . 37,200(due in 60 days). . . . . . . . . . . . . $ 12,400
Building. . . . . . . . . . . . . . 38,000Accounts Payable . . . . . . . . . . . . . 9,600
Office Equipment . . . . . . 1,200Total liabilities . . . . . . . . . . . . . . $ 22,000
Capital Stock . . . . . . . . . $60,000
Total . . . . . . . . . . . . . . . . $120,400 Total . . . . . . . . . . . . . . . . . . . . . . . . . $120,400
STAR CORPORATIONBALANCE SHEET
Star Corporation
JULY 31, 20112011Balance sheet
July 31, 2011
Assets Liabilities & Owners’ Equity
Cash . . . . . . . . . . . . . . . . $ 4,800Liabilities:
Accounts Receivable . . . 9,600Notes Payable
Land . . . . . . . . . . . . . . . . 96,000(due in 60 days). . . . . . . . . . . . . $ 22,400
Building. . . . . . . . . . . . . . 60,000Accounts Payable . . . . . . . . . . . . . 43,200
Office Equipment . . . . . . 12,000Total liabilities . . . . . . . . . . . . . . $ 65,600
Stockholders’ equity:
Capital Stock . . . . . . . . . $72,000
Retained Earnings. . . . . 44,800 116,800
Total . . . . . . . . . . . . . . . . $182,400 Total . . . . . . . . . . . . . . . . . . . . . . . . . $182,400
Instructions
a. Assume that you are a banker and that each company has applied to you for a 90-day loan of
$12,000. Which would you consider to be the more favorable prospect? Explain your answer fully.
b. Assume that you are an investor considering purchasing all the capital stock of one or both of the companies. For which business would you be willing to pay the higher price? Do you see any indication of a financial crisis that you might face shortly after buying either company? Explain your answer fully.
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