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Jay Oullette, CEO of Bumper to Bumper Inc., anticipates that his company's year-end balance sheet will show current assets of $12,855 and current liabilities of
Jay Oullette, CEO of Bumper to Bumper Inc., anticipates that his company's year-end balance sheet will show current assets of $12,855 and current liabilities of $7,530. Oullette has asked your advice concerning a possible early payment of $3,770 of accounts payable before year-end, even though payment isn't due until later. Required:
- Calculate the firms working capital and current ratio under each situation.
- Assume that Bumper to Bumper had negotiated a short-term bank loan of $6,000 that can be drawn down either before or after the end of the year. Calculate working capital and the current ratio at year-end under each situation, assuming that early payment of accounts payable is not made. When would you recommend that the loan be taken?
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