Question

Aspero, Inc., has sales of approximately $500,000 per year. Aspero requires a short-term loan of $100,000 to finance its working capital requirements. Two banks are considering Aspero’s loan request but each bank requires certain minimum conditions be satisfied. Bank America requires at least a 25% gross margin on sales, and Bank Boston requires a 2:1 current ratio. The following information is available for Aspero for the current year:
• Sales returns and allowances are 10% of sales.
• Purchases returns and allowances are 2% of purchases.
• Sales discounts are 2% of sales.
• Purchase discounts are 1% of purchases.
• Ending inventory is $138,000.
• Cash is 10% of accounts receivable.
• Credit terms to Aspero’s customers are 45 days.
• Credit terms Aspero receives from its suppliers are 90 days.
• Purchases for the year are $400,000.
• Ending inventory is 38% greater than beginning inventory.
• Accounts payable are the only current liability.

Required:
Assess whether Aspero, Inc., meets the credit constraint for a loan from either or both banks.
Show computations.



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  • CreatedJanuary 22, 2015
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