CA 14-4 a) Project purpose financing arrangements are that in which a main company create special

purpose entity with a purpose to build a plant and not to report the plant or the borrowing used to fund the construction on its balance sheet.
b) Take or pay contract is an agreement between a purchaser of goods signs with the seller to

pay specified amounts periodically in return for products or services. The purchaser must make specified minimum payments even if delivery of the contracted products or services is not taken as a main company promises that it will buy all the product produced by the plant.
c) Ryan should not record the asset as he has Take or Pay contract with Aluminum Can Com-

pany and Aluminum Can Company has taken the operation to construct and operation the plant.
d) e) Off balance sheet financing is form of financing to borrow money in a way to prevent

recording of the obligations.

Coca Cola V/s Pepsi Co, Inc

a) (2009) Debt to Total Asset Ratio: Coca Cola=23325/48671 = 47.8%

Pepsi Co, =22406/39848= 56 % b ) (2009 )Time Interest earned ratio: Coca Cola=6824+2040+355/355=25.96 times Pepsi Co =5979+2100+397/397=21.35 times

The debt to total assets ratios of 48 % of Coca-Cola and 56% of PepsiCo show Pepsi co to be highly leveraged, PepsiCo more than Coca-Cola. The times interest earned ratios of Coca Cola show that show that interest expense is quite adequately covered by the firms’ net income Coca-Cola coverage is more than Pepsi Co; it is quite OK
C) (2009) Rate of return on common stock equity:

: Coca Cola=6824/25346+20862/2=29.56% Profitability ratio of Pepsi co is better than Coca Cola from the common stock holder’s point of view. .53% Pepsi Co = 5946/17442+12582/2=39. This ratio shows how many dollars of net income the company earned for each dollar invested by the owner.6% d) (2009) Pay Out Ratio: Coca Cola=3800/6824=55.68% Pepsi Co = 2768/5946-2=46.

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