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About the case Survival due to conservative financial policies and success in capital goods industry, thus no debt balance. Dec 1978- initial loan of 1 million to facilitate repurchase of the stocks (75000stocks@$10) interest rate- 3/2% per month due date- September 1979
Extention of loan to december 1979 Additional loan of $0.35 million to finance equipments purchase Payback by 31st december1979, @3/2% interest p.m. 30 days collection period 30 days pay back peiod.
Problem statement
Will the company be able to repay its loan???
Working capital ratioCurrent assets/current liabilitiesMonth of august7007/4545= 1.541 Ideal ratio- 2:1, thus unfavorable