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 anamount of up to 35% of its inventory balance and 55% of its accounts receivable. One of the loan covenants requires that CI maintaina current ratio greater than 2. Information related to CI's current assets and current liabilities is shown in the following table:In thousandsCashAccounts receivableInventoryOther current assets,Accounts payableShort-term bank loanOther current liabilities(a)Current ratio2024CI$1612,0541,3423381.402562562023$2241,2302,3063951.343Does CI satisfy the loan covenant in both years? (Round answers to 2 decimal places, eg. 18.45)2781122024timesthe loan covenant in 2024the loan covenant in 20232023times

The liquidity ratio used to assess a company's capacity to meet short-term or one-year-due…

Answered: Crane Inc. (CI) has a short-term…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 19P

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Gil Corporation has current assets of $90,000 and current liabilities of $180,000. Required: Compute the effect of each of the following independent transactions on Gil's current ratio: 1. Refinancing a $30,000 long-term mortgage with a short-term note. 2. Purchasing $50,000 of merchandise inventory with short-term accounts payable. 3. Paying $20,000 of short-term accounts payable. 4. Collecting $10,000 of short-term accounts receivable.
Gingerbread Corp was issued a $250,000 loan at 8% with a five year maturity date. The partial amortization schedule prepared by the company accountant is presented below. What will the company record for interest expense in period 4? (round decimal up to the nearest whole $) Interest expense in period four ?
Waterfront Inc. wishes to borrow on a short-term basis withoutreducing its current ratio below 1.25. At present its current assetsand current liabilities are $1,600 and $1,000 respectively. How muchcan Waterfront Inc. borrow?
Jhar Industries has borrowed $125,000 under a line-of-credit agreement. While the company normally maintains a checking account balance of $15,000 in the lending bank, this credit line requires a 20% compensating balance. The stated interest rate on the borrowed funds is 10%. Show Solutions and Explanation. A. What is the effective annual rate of interest on the line of credit? (Format: 11.11%)
Leven Corporation negotiated a short-term loan of $685,000. The loan is due in 10 months and carries a 6.86 interest rate. Use simple interest to calculate the total amount of thetioan. If necessary, round the answer to the nearest cent.
a. Abc Investment Ltd., plans to borrow Ghc100,000 for a 90-day period from Lloyds Finance Company. Abc investment would repay the principal amount plus Ghc5,000 interest at maturity. Determine and calculate the Annual Percentage Rate of the credit to Abc Company Ltd. b. Belinda Limited has annual credit sales of Ghc5 million and cost of sales of GHC1.8 million. The company’s current assets consist of inventory and trade receivables. Current liabilities consist of accounts payables and an overdraft facility with an average interest rate of 10% per annum. The company gives 60 days credit to its customers and is allowed an average of 30 days credit by trade suppliers. The company has an operating cycle of 90 days. Other relevant information: Current ratio of Ait Ltd 1.5:1 Cost of long-term finance to Ait Ltd is 12% per annum Required: Calculate the, (i) Size of the overdraft of Ait Ltd (ii) Net working capital of the company (iii) Total cost of financing its current assets c.…
Jackson Industries has borrowed $125,000 under a line-of-credit agreement. While the company normally maintains a checking account balance of $15,000 in the lending bank, this credit line requires a 20% compensating balance. The stated interest rate on the borrowed funds is 10%. 1.What is the effective annual rate of interest on the line of credit? Format: 11.11%
Dunder Corporation has an existing loan in the amount of $8 million with an annual interest rate of 6.0%. The company provides an internal company-prepared financial statement to the bank under the loan agreement. Two competing bank: have offered to replace Dunder Corporation's existing loan agreement with a new one. Sunset Lending Bank has offere to loan Dunder $8 million at a rate of 5.2% but requires Dunder to provide financial statements that have been reviewed by a CPA firm. Big Top Bank has offered to loan Dunder $8 million at a rate of 4.4% but requires Dunder to provide financial statements that have been audited by a CPA firm. Dunder Corporation's controller approached a CPA firm and was given an estimated cost of $29,000 to perform a review and $51,000 to perform an audit. Read the requirements. (Enter amounts in dollars, not millions, throughout.) of the lower information risk. A review report provides moderate users. Compared to a review report, an audit provides further…
The following structure of interest rates is given: Term of Loan Interest Rate 1 year 3% 2 year 4% 5 year 6% 10 year 8% Your firm needs $2,000 to finance its assets. Three possible combinations of sources of finance are listed below: (1) (2) Assets $2,000 Liabilities $0 Assets $2,000 Liabilities $840 (a one-year loan) Equity $2,000 Equity $1,160 (3) Assets $2,000 Liabilities $840 (a 10-year loan) Equity $1,160 The firm expects to generate revenues of $2,550 and have operating expenses of $2,120. If the firm's tax rate is 40 percent, what is the return on equity under each choice? Round your answers to two decimal places. Choice 1: % Choice 2: % Choice 3: % During the second year, sales decline to $2,200 while operating expenses decline to $1,900. The structure of interest rates becomes: Term of Loan Interest Rate 1 year 5%…
Stephens Metals Company has a revolving credit agreement with its bank permitting it to borrow up to $25 million at an annual interest rate of 12. Stephens is required to maintain a 10% compensating balance on any funds borrowed under this agreement and to pay a 0.5% commitment fee on the unused portion of the credit line. The company maintains a $500,000 balance at the bank that can be used to meet the compensating balance requirement. Determine the annual finance cost of borrowing the $20 million under this revolving credit. *show work* A) 13.3% B) 13.5% C) 13.1% D) 12.0%
NOP Co. has agreed to the following loan proposal by a bank:▪ Stated interest rate of 10% on a one-year discounted note ▪ 15% of the loan as compensating balance with zero-interest current account to be maintained with the bank. ▪ The loan will have net proceeds of P1,500,000. Required:1. How much is the principal amount of the loan?
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