Hoffman Paper Company, a profitable distributor of stationery and office supplies, has an agreement with its banks that allows Hoffman to borrow money on ashort-term basis to finance its inventories and accounts receivable. The agreement states that Hoffman must maintain a current ratio of 1.5 or higher and a debtratio of 50 percent or lower. Cash $ 55,000 Current liabilities $ 210,000 Accounts receivable 160,000 Long-term debt 300,000 Inventory 250,000 Stockholders'equity 635,000 Fixed assets (net) 680,000 Total liabilities and stockholders' equity $1,145,000 Total assets $1,145,000a.) Given the balance sheet provided above, determine how much additional money Hoffman could borrow at this time to invest in inventory and accountsreceivable without violating the terms of its borrowing agreement. Round your answer to the nearest dollar.

The money which will be borrowed from the bank but on which the condition is applicable have to be…

Answered: a.) Given the balance sheet provided…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 21P

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Crane Inc. (CI) has a short-term working capital loan to help finance its working capital. The terms of the loan enable CI to borrow an amount of up to 35% of its inventory balance and 55% of its accounts receivable. One of the loan covenants requires that CI maintain a current ratio greater than 2. Information related to CI's current assets and current liabilities is shown in the following table: In thousands Cash Accounts receivable Inventory Other current assets, Accounts payable Short-term bank loan Other current liabilities (a) Current ratio 2024 CI $161 2,054 1,342 338 1.402 562 56 2023 $224 1,230 2,306 395 1.343 Does CI satisfy the loan covenant in both years? (Round answers to 2 decimal places, eg. 18.45) 278 112 2024 times the loan covenant in 2024 the loan covenant in 2023 2023 times
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a.) Given the balance sheet provided above, determine how much additional money Hoffman could borrow at this time to invest in inventory and accounts receivable without violating the terms of its borrowing agreement. Round your answer to the nearest dollar.