Eliminate the past-due accounts payable

Assignment Help Financial Management

Reference no: EM131518859

The Raattama Corporation had sales of $3.5 million last year, and it earned a 5% return, after taxes, on sales. Recently, the company has fallen behind in its accounts payable. Although its terms of purchase are net 30 days, its accounts payable represent 60 days’ purchases. The company’s treasurer is seeking to increase bank borrowings in order to become current in meeting its trade obligations (that is, to have 30 days’ payables outstanding). The company’s balance sheet is as follows (in thousands of dollars) Cash $100 Accounts Payable $600 Accounts receivable 300 Bank loans 700 Inventory 1,400 Accruals 200 Current Assets $1,800 Current Liabilities $1,500 Land and Buildings 600 Mortgage on real estate 700 Equipment 600 Common Stock 300 Retained Earnings 500 Total Assets $3,000 Total Liabilities & Equity $3,000 a. How much bank financing is needed to eliminate the past-due accounts payable? b. Would you as the bank loan officer make the loan? Why or why not?

Reference no: EM131518859

Questions Cloud

Assume the company wants to operate at full capacity : Southern Mfg., Inc., is currently operating at only 85 percent of fixed asset capacity. Assume the company wants to operate at full capacity.

Perform an internet search for national religion databases : Perform an internet search for national religion databases. Compose a 150-300 word summary analysis for both of selected databases

What would be the net financing of three accounts : Assume net sales of $1,200,000 and cost of goofs sold of $900,000. Determine the average investment in accounts receivable, inventories, and accounts payable.

Required return exceed foley required return : The risk-free rate of interest is 3.75%. By how much does Beale's required return exceed Foley's required return?

Eliminate the past-due accounts payable : How much bank financing is needed to eliminate the past-due accounts payable?

What is net economic gain or loss on entire option portfolio : What is the net economic gain or loss on the entire option portfolio?

Average amount of accounts payable net of discounts : What is the average amount of accounts payable net of discounts? what would be its average payable balance and what would be cost of this non-free trade credit.

Maximum price in light of dividend payment logistics : Kenzie Cos. is expected to pay a dividend of $2.45 per year indefinitely. What will be the expected maximum price in light of the dividend payment logistics

Calculate the npv of decision to grant credit : Solar Engines manufactures solar engines for tractor-trailers. Calculate the NPV of the decision to grant credit.

User Account

All Pages