Moon Corporation and Star Corporation are in the same line ofbusiness and both were recently organized, so it may be assumedthat the recorded costs for assets are close to current marketvalues. The balance sheets for the two companies are as follows atJuly 31, current year.
MOON CORPORATION BALANCE SHEET JULY 31, CURRENTYEAR
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, currentyear
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 hasapplied to you for a 90-day loan of $12,000. Which would youconsider to be the more favorable prospect? Explain your answerfully.
B) Assume that you are an investor considering purchasing allthe capital stock of one or both of the companies. For whichbusiness would you be willing to pay the higher price? Do you seeany indication of a financial crisis that you might face shortlyafter buying either company? Explain your answer fully. (For eitherdecision, additional information would be useful, but you are toreach your decision on the basis of the information available.)
