Jerry Peter’s small town cafe has a loyal following and he wants to expand his operation. He can rent an adjoining building and convert the space to a banquet room. The expected expansion costs, including china, glassware, food inventory, and so on equal $100,000. His prior financing agreement prohibits his company from operating with a current ratio below 1.5. His current assets total

$150,000 and current liabilities total $75,000.

Required:

1. Assume 50% of the funds from a new short-term loan are spent on inventory and the other 50% on renovation costs (that would be capitalized as leasehold improvements), how much can be borrowed?

2. Assume all expenditures based on a new short-term loan are for inventory and other current assets, how much can be borrowed?

3. Assume all expenditures from a new short-term loan are for noncurrent assets, how much can be borrowed?