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Decision making - loan approval, purchase of business

Question 1

ABC Company and XYZ Company conduct the same type of business. Both were recently formed; thus the statement of financial position figures for assets can be assumed to be at current market valuation. The statements of financial position of the two companies at 30 June 20X0 were as follows...

a. Assuming that you are a banker and that the owner of each business has applied for a short-loan (repayable in six months) of $6000, which application would you select as being the more favourable? Why?

b. Assuming that you are a businessperson interested in buying one or both companies, and both owners have indicated their intentions to sell, for which business would you be willing to pay the higher price, assuming you will be taking over the existing liabilities of the company? Explain.

c. If the existing owners agreed to be accountable for all the existing liabilities, how would this change your decision in (b), if at all?

Please see attached for full question.


Solution Summary

The solution explains how to decide whether to approve a loan and which business to invest in