Reference no: EM131204852
Liquidity R Montague and J Capulet distribute films to movie theaters. Following are the current assets for each distributor at the end of the year. (All amounts are in millions of dollars.) Required: As a loan officer for First National Bank of Verona Heights, assume that both companies have come to you asking for a $10 million six-month loan. If you could lend money to only one of the two, which one would it be? Justify your answer by completing a brief memo to the president of the bank. Round any percentages to two decimal places. TO: The President of FNB of Verona Heights FROM: Joe Smith, Loan Officer DATE: X/X/XX SUBJECT: Loan proposals I have reviewed the loan proposals recently submitted by R Montague and J Capulet and have summarized my findings. Because of limited resources available for short-term loans, my recommendation is that we make a six-month $10 million loan to only. The total current asset positions of the two companies are identical. Each has $33 million in current assets. However, the composition of the current assets differs considerably between the two companies. On the surface, may appear to be stronger because it has twice the amount of that does. However, is essentially a nonearning asset, and I am skeptical as to why believes it necessary to maintain such a large sum of cash on hand, and consequently, why it believes it needs to borrow an additional $10 million. The accounts receivable for is significantly larger than that for . Assuming that the estimates of bad debts are reasonably reliable, has a bigger problem with uncollectibles than does . R Montague has an allowance that is % of accounts receivable, while J Capulet’s percentage is %. In summary, is a better candidate at the present time for a loan. I recommend that we make a six-month $10 million loan to at the current market rate of interest. Please call if you need any further details in connection with these two loan requests.
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Distribute films to movie theaters
: Liquidity R Montague and J Capulet distribute films to movie theaters. Following are the current assets for each distributor at the end of the year. (All amounts are in millions of dollars.) Required: As a loan officer for First National Bank of Vero..
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