Temporarily meet the company cash needs

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Reference no: EM131461427

Razor Industries develops and produces high-end electronics. The company has an outstanding $10,000,000, 30 year, 10% bond issue dated July 1, 2009. The bond issue is due June 30, 2038. Some bond indentures require the corporation issuing the bonds to transfer cash to a special fund, called a sinking fund,over the life of the bond. Such funds help assure investors that there will be adequate cash to pay the bonds at their maturity date.

The bond indenture requires a bond sinking fund, which has a balance of 1,200,000 as of July 1, 2014.The company is currently experiencing a shortage of funds due to a recent acquisition. Henry London,the company's treasurer, is considering using the funds from the bond sinking fund to cover payroll and other bills that are coming due at the end of the month. Henry's brother in law, a trustee of Razor's sinking fund, has indicated willingness to allow Henry to use the funds from the sinking fund to temporarily meet the company's cash needs.

Do you think Henry's idea is appropriate?

Reference no: EM131461427

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