Cubicle Company is in need of another factory building. The building will cost $500,000. Cubicle is considering

Question:

Cubicle Company is in need of another factory building. The building will cost $500,000. Cubicle is considering the following possible financing alternatives to acquire the building.

(a) Lease the building under an operating lease.

(b) Issue common stock in the amount of $500,000.

(d) Negotiate a long-term bank loan for $350,000 and increase short-term borrowing by $150,000.

Currently, Cubicle has current assets of $600,000, noncurrent assets of $975,000, current liabilities of $280,000, and noncurrent liabilities of $410,000. Under existing loan covenants, Cubicle must maintain a current ratio of 2.0 or more and a debt-to-equity ratio of less than 0.80. Which, if any, of the financing alternatives will allow Cubicle to avoid violating the loan covenants?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...