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
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.)
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