Assume that you inherit $10,000, which according to the terms of the bequest must be invested in a single company. After much research, you find two attractive alternatives: The Salt Company and The Pepper Company Required

a. On the basis of the following limited information, which of the following would you prefer (M = millions of dollars)?
Salt Co. Pepper Co.
Total assets $40M $25M Net income $4M $4M

b. If you then find the following additional information about each company’s liabilities, which company would you prefer? Why?
Salt Co. Pepper Co.
Total liabilities $20M $23M

c. If you then read a newspaper article predicting each firm’s future income prospects, which firm is now preferable? Why?
Salt Co. Pepper Co.
Next year’s predicted net income $1M $10M

d. Write a short memo describing any additional information that you might find helpful in making an investment in either of the two companies. p-968