Aitken Company needs cash. The company has several hot new products and sales are growing rapidly. The controller has just presented CEO Jim Aitken the following balance sheet updated through today, saying, “We’ve got to raise $90,000 cash immediately.”

The controller proposed three options to raise the $90,000:
(1) Obtain a short-term bank loan,
(2) Sell new shares of common stock, or
(3) Issue long-term bonds payable. She also presented the CEO with the following information about financial ratio benchmarks for companies in their industry.

Required
A. Compute today’s value of the four ratios for which benchmarks are given.
B. Evaluate each value computed in part A with its industry benchmark. Which ratio values are strong? Which are weak?
C. Compute pro-forma (projected) ratio values under each of the three financing options.
That is, for each option, what would be the new ratio values immediately after that option was implemented?
D. Evaluate your results from part C. Which financing option would best strengthen the company’s financial position as measured by the four ratios considered?Explain.

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Assets Liabilities Cash Accounts receivable Inventory Machinery, net Buildings, net Land Total assets $11,200 15,000 10,000 Accounts payable Other short-term liabilities Long-term debt $ 18,550 39,550 100,000 107,500 Stockholders' equity 253,600 Contributed capital Retained eamings Total liabilities and equity 200,000 119,200 $477,300 80,000 $477,300 Ratio Current ratio Long-term debt to equity Long-term debt to assets Assets to equity High 2.5 0:28 0.19 1.3 Average 1.5 0.40 0:26 Low 1.0 0.53 0.35 2.0