Question

Halifax Products has a $1 million bank loan that comes due next year. Management has prepared cash flow forecasts for each of the next six quarters as shown in the table below. Planned capital expenditures are intended to replace failing manufacturing equipment, upgrade computer systems, and refurbish the company president’s office. These forecasts have been shared with the bank loan officer responsible for overseeing the Halifax loan.


Required:
1. Explain why the loan officer might consider the Halifax loan to be of high credit risk.
2. What steps can company management take to reduce the loan’s credit risk?
3. What steps can the bank loan officer take to reduce the loan’s creditrisk?


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  • CreatedSeptember 10, 2014
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