P2-11 a) Comparing these companies to each other in terms of their ratios might be an inaccurate measure mainly because these companies are different in nature hence their ratios will not be the same. Also since they operate in different industries their idle ratios will differ from each other…
c) The utility company can take out a large debt as it is able to sustain it as it generates enough revenue throughout the year to finance the debt where a software company which works on one of orders and generates revenue on successful orders completed hence they cannot afford to reduce their profitability and revenues by taking debt and then giving interest on it. d) The investor would not invest all the investment in one company as this will increase risk. When the investment is spread over all the various companies and various industries of different nature the inherent risk of investment is diversified and minimized. P2-15 a) The company has a very effective sales collection system in place and as per the figures the company has a defective rate of 12.5% and rest of the sales in other terms have been collected in cash or were already collected as per the system. b) Yes it would increase the entire debt from a 12.5% to a staggering 16.67% which would mean the company is effectively loosing 16.67% of the 75% sales that it is making which is a huge problem for the company. ...
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Thus, the bond could be said to be selling at a discount.
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