The proceeds of the term loan will be used to increase Sharpe's investment in inventories and receivables
Question:
The proceeds of the term loan will be used to increase Sharpe's investment in inventories and receivables in response to introducing a new "closer-to-theface"
razor blade. The company anticipates a subsequent need to grow at a rate of 24 percent a year, equally divided between current assets and net fixed assets. Profits after taxes of $1.5 million are expected this year, and these profits are further expected to grow by $250,000 per year over the subsequent 3 years. The company pays no dividends and does not intend to pay any over the next 4 years. Depreciation in the past year was $2.5 million, and this is predicted to grow over the next 4 years at the same rate as the increase in net fixed assets. Under the loan agreement, will the company be able to achieve its growth objectives?
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