,
,
, Chapter 01 - The Investment Environment
8. a.
Liabilities &
Assets
Shareholders’ equity
Cash $ 70,000 Bank loan $ 50,000
Computers 30,000 Shareholders’ equity 50,000
Total $100,000 Total $100,000
Ratio of real assets to total assets = $30,000/$100,000 = 0.30
b.
Liabilities &
Assets
Shareholders’ equity
Software product* $ 70,000 Bank loan $ 50,000
Computers 30,000 Shareholders’ equity 50,000
Total $100,000 Total $100,000
*Valued at cost
Ratio of real assets to total assets = $100,000/$100,000 = 1.0
c.
Liabilities &
Assets
Shareholders’ equity
Microsoft shares $120,000 Bank loan $ 50,000
Computers 30,000 Shareholders’ equity 100,000
Total $150,000 Total $150,000
Ratio of real assets to total assets = $30,000/$150,000 = 0.20
Conclusion: when the firm starts up and raises working capital, it is characterized by
a low ratio of real assets to total assets. When it is in full production, it has a high
ratio of real assets to total assets. When the project "shuts down" and the firm sells it
off for cash, financial assets once again replace real assets.
9. For commercial banks, the ratio is: $107.5/$10,410.9 = 0.010
For non-financial firms, the ratio is: $13,295/$25,164 = 0.528
The difference should be expected primarily because the bulk of the business of
financial institutions is to make loans; which are financial assets for financial
institutions.
10. a. Primary-market transaction
b. Derivative assets
c. Investors who wish to hold gold without the complication and cost of physical
storage.
1-3
,
, Chapter 01 - The Investment Environment
8. a.
Liabilities &
Assets
Shareholders’ equity
Cash $ 70,000 Bank loan $ 50,000
Computers 30,000 Shareholders’ equity 50,000
Total $100,000 Total $100,000
Ratio of real assets to total assets = $30,000/$100,000 = 0.30
b.
Liabilities &
Assets
Shareholders’ equity
Software product* $ 70,000 Bank loan $ 50,000
Computers 30,000 Shareholders’ equity 50,000
Total $100,000 Total $100,000
*Valued at cost
Ratio of real assets to total assets = $100,000/$100,000 = 1.0
c.
Liabilities &
Assets
Shareholders’ equity
Microsoft shares $120,000 Bank loan $ 50,000
Computers 30,000 Shareholders’ equity 100,000
Total $150,000 Total $150,000
Ratio of real assets to total assets = $30,000/$150,000 = 0.20
Conclusion: when the firm starts up and raises working capital, it is characterized by
a low ratio of real assets to total assets. When it is in full production, it has a high
ratio of real assets to total assets. When the project "shuts down" and the firm sells it
off for cash, financial assets once again replace real assets.
9. For commercial banks, the ratio is: $107.5/$10,410.9 = 0.010
For non-financial firms, the ratio is: $13,295/$25,164 = 0.528
The difference should be expected primarily because the bulk of the business of
financial institutions is to make loans; which are financial assets for financial
institutions.
10. a. Primary-market transaction
b. Derivative assets
c. Investors who wish to hold gold without the complication and cost of physical
storage.
1-3
