a) What does the current ratio tell you about the firm? Compute the current ratio for National Manufacturing Company and Sterling Corporation.

b) Assume the role of a commercial banker who has been approached by both of the firm with a request for a 90-day loan for $200,000. For which of the firms are you most likely to approve the loan? Why?

c) If you are considering the purchase of one of the firms and assuming the liabilities of each, for which would you be willing to pay the higher price? Provide justification based on an evaluation of the balance sheet information provided.

The balance sheet for National Manufacturing Company and Sterling Corporation are found below. Both firms are involved in the manufacturing of electrical components used in small electronic calculators and digital wristwatches. Both firms are less than three years old, their book values are reasonably close to actual market value. National Manufacturing Company Balance Sheet December 2016 Assets Liabilities & Equity $50,000 Notes Payable 90,000 Accounts Payable 350,000 Cash $520,000 (Due in 30 days) $420,000 Building225,000 Owners' Equity$150,000 Accounts Receivable Machinery Land 375,000 $1,090,00 $1,090,000 Sterling Corporation Balance Sheet December 2016 Assets Cash $50,000 Notes Payable $120,000 (due in 30days) Accounts Receivable Buildin Machinery Land 200,000 Accounts Payable 150,000 640,000 10,000 Owners' Equity 350,000 300,000 910,000 910,000