Solution-How much bank financing is needed to eliminate the

How much bank financing is needed to eliminate the past-due

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The Raattama Corporation had sales of $3.5 million last year, and it earned a 5 percent 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 (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, $0.10 par	300
		Retained earnings	500
Total assets	$3,000	Total liabilities and equity	$3,000

a. How much bank financing is needed to eliminate the past-due accounts payable?

b. Would you as a bank loan officer make the loan? Why or why not?

Reference no: EM13483414

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How much bank financing is needed to eliminate the past-due

Reference no: EM13483414

Reference no: EM13483414

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