Greek Connection would like to obtain a line of credit from the bank to help manage

short term cash flows. Their balance Sheet is as follows:

The bank is willing to provide a line of credit of $$4,500,000$ to Greek Connection, secured

by $75\%$ of Accounts Receivable and $50\%$ of inventory. They have also indicated that

Inventory cannot make up more than $50\%$ of the borrowing base.

a$)$ What borrowings could Greek Connection's theoretically support?

b$)$ If Greek Connection was borrowing the maximum of $$4,500,000,$ what would their

borrowing base surplus be$?$

c$)$ Greek Connection provides the bank with an age analysis of their Accounts

Receivable every month. Let's say the bank observed one month that $$1,100,000$ of the

Accounts Receivable balance had been outstanding for more than the standard

credit terms for Greek Connections of $45$ days. Given this new piece of information, do

you think the bank would adjust the borrowing base? If so$,$ how would they adjust it$,$

and what would the new borrowing base be$?$

d$)$ At the next Greek Connection board meeting the CEO of the company presents a

new strategy for managing cash flow in the business. He says:

I have managed to secure a line of credit with the bank. The bank uses Accounts

Receivable and Inventory as collateral for the line of credit. Therefore as part of our

new cash management strategy I propose that we dramatically increase our Accounts

Receivable terms to allow customers to pay in $120$ days, and that we also increase our

Inventory days so that we are always holding at least $100$ days of inventory. I believe it

is important that we keep our suppliers happy, so we should our suppliers within $30$

days. This new strategy will allow us to further increase our line of credit with the bank".

Do you think this new strategy of the CEO's is good or bad? Comment briefly in abou$$

$3-4$ sentences.

Use excel to solve