Question

Moon Corporation and Star Corporation are in the same line of business and both were recently organized, so it may be assumed that the recorded costs for assets are close to current market values. The balance sheets for the two companies are as follows at July 31, current year.

MOON CORPORATION BALANCE SHEET JULY 31, CURRENT YEAR

Assests

Cash 21600

Acounts receivable 31200

Office equipment 1400

Building 45600

land 44640

total: 144480

Liabilities

Notes payable (due in 60 days) 14880

accounts payable 11520

stock holders equity:

Capital stock 72000

Retained Earnings: 46080

Total: 144480

Star Corporation Balance Sheet July 31, current year

Assets

Cash 5760

Accounts receivable 11520

Office equipment 14400

building 72600

land 115200

Liabilities

Notes Payable (due in 60 days) 26880

accounts payable 51840

Stock Holders Equity:

Capital stock: 86400

Retained earnings: 53760

Total: 218880

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. (For either decision, additional information would be useful, but you are to reach your decision on the basis of the information available.)

Answer 1

A) if I am a banker ,first I will analyse the both companies assets and liabilities

After analysing the both companies I will found the key point about the 90 day loan $12000 for both companies that is already they have notes payable(due in 60days)

MOON CORPORATION - notes payable =$14,880

STAR CORPORATIONS - notes payable =$26,880

By observing the above due of both companies tha MOON CORPORATIONS have less notes payable and it is eligible to get $12000 a 90day loan

Here notes payable is the key decision factor

B) if I am investor I will do and study the both companies financial position, after I Wii make the best decision

Here in the above balance sheets of both companies have some assets and liabilities by observing them I found one key factor retained earnings of both companies

Retained Earnings

MOON CORPORATIONS - $46080

STAR CORPORATIONS - $53,760

BY observing them STAR corporations have more profitable than Moon corporations ,because earning capacity. So finally I will purchase STAR CORPORATIONS stocks

Key factors retained earning of both companies