Suppose That You Are a Bank Executive and That Two

question 5

Essay

Suppose that you are a bank executive and that two corporations have asked the bank,through you,to buy bonds to finance the respective investments that they'd like to make.The first firm is financed 90% through debt and 10% through equity,while the second firm is financed 50% through debt and 50% through equity.Except for the finance structure and its implications (if any),assume that there are no differences between the two firms.
(a)Suppose that you are unable to determine whether the project the first firm wants you to finance is any better or worse than the project the second firm wants you to finance.Suppose also that you want to lend both corporations the money.Should you charge both of them the same interest rate? Explain.
(b)Suppose that you were instead a firm manager.In which of the corporations would you rather be? Explain.

Analyze the effects of not recording a liability on financial statements.

Identify the classifications and characteristics of current and non-current liabilities.

Understand the accounting treatment and implications of interest expenses and finance charges.

Recognize the treatment of deferred revenue and its impact on financial reporting.

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Definitions:

Sales Strategy

A plan or approach designed to promote and sell a product or service effectively, maximizing revenue and market share.

Salesperson Career Path

The progression of stages or steps a salesperson can take in their career, from entry-level positions to senior sales roles or management.

Xerox

Originally a company known for its photocopying products, the term Xerox also colloquially refers to the act of photocopying.

3M

A multinational conglomerate corporation known for its research and development of a wide range of products, including adhesives, abrasives, and personal protective equipment.