Mr. David Lawson, the CFO of Golden Cup plans to increase the companys long-term debt from $40,000 to $80,000 by getting a 5-year loan from bank of America.

a- What type of financial decisions did MR. David take? Solution:

b- Will this decision result in Golden Cup to be excessively levered if everything else remains unchanged? Show your calculations, knowing that industry average debt/equity ratio is 1. Solution:

C- Mr. David is planning to use half of the long-term loan proceeds to increase Golden Cup inventory holdings, what type of financial decision is this? If nothing else changes, how would this decision affect Golden Cup liquidity?

Solution: