Question
Herrera Corp. is preparing its 2017 financial statements and is concerned about violating the debt covenant on a large loan. The debt covenant requires Herrera
Herrera Corp. is preparing its 2017 financial statements and is concerned about violating the debt covenant on a large loan. The debt covenant requires Herrera to maintain a current ratio of 2.2:1. At August 12, 2017, Herrera currently has a current ratio of 2.0:1. Herrera is considering various options to make the problem disappear. Show what impact each of the following would have on the current ratio, and whether it could achieve the goal. (You can always make up fake numbers as a way to test your supposition.) a. Pay some current liabilities off. b. Buy more inventory with cash. c. Sell off some short-term marketable securities. d. Borrow cash on a 2-year note. e. Try to sell lots more merchandise at yearend by offering steep discounts. f. Sell unused equipment, if possible.
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