1 2 3 4 5 A company is expanding and wants to increase its level of inventory to support an aggressive sales target. They would like to finance this expansion using debt. The company currently has loan covenants that require the current ratio to be at least 1.2. The average cost of the current liabilities is 12%, and the cost of the long-term debt is 8%. Below is the current balance sheet for the company. Current assets $200,000 Current liabilities $165,000 Fixed assets 100,000 Long-term debt 100,000 Equity 35,000 Total assets $300,000 Total debt & equity $300,000 Which one of the following alternatives will provide the resources to expand the inventory while lowering the total cost of debt and satisfying the loan covenant? Basic Calculator Time Value Tables 7 D 10 11 13 A. Borrow short-term funds of $25,000, and purchase inventory of $25,000. 15 B. Sell fixed assets with a book value of $20,000 for $25,000, and use the proceeds to increase inventory 16 C. Collect $25,000 accounts receivable, use $10,000 to purchase inventory, and use the balance to reduce short-term debt. 19 D. Increase both accounts payable and inventory by $25,000