Advanced Financial Management

Name $q,$ Take$-$home Problem Exam $1(50$ points$)$

Afim has $$250,000,000$ in current assets, which consists of $$50,000,000$ in $AR,$$$110,000,000$ in inventory and remainder in cash. The firm has shortterm liabilities of $$90,000,000.$ Assume the firm wants to increase inventory by raising money through issuing shorterm notes. $(30$ points$)$

The firm has two potentially binding loan covenants where it must always maintain a current ratio of $2\mathrm{.}60$ and a quick ratio of $1\mathrm{.}40.$

A$)$ What is the maximum the firm could raise and not violate the current ratio covenant $($show work$)?$

Amount $q,$

B$)$ What is the maximum the firm could raise and not violate the quick ratio covenant $($show work$)?$

$\sqrt[\phantom{2}]{3}$

Amount $q,$

C$)$ Based upon the above, what is the maximum the firm could raise and not violate the loan covenantor? Explain.

Amount $q,$

D$)$ In practice, would you raise the amount of money indicated in C$)$ Why or why note