Pulsar Inc. is a lumber manufacturer from Ontario, Canada. Pulsars operations are very working capital intensive, as it has to maintain inventory as well as extend credit to its customers. Hence, Pulsar has set up a funding line of credit with the bank to manage its working capital needs. It has currently an approved limit of $200,000.

The bank has informed Pulsar of the following restrictions/constraints on borrowing under this line:

60% of the receivables less than 90 days old

50% of finished goods inventory

Debt/Equity ratio no worse than 0.5:1

Here is the snapshot of Pulsars latest financial information:

Pulsar has accounts receivable worth $150,000 and inventory worth $200,000

The ageing schedule of the receivable is as follows:

Maturity Receivables <30 days $100,000

>= 30 days to <90 days $35,000

>90 days $15,000

Inventory

Inventory Type Inventory

Raw Material $50,000

Finished Goods $150,000

Total liabilities of the company is $400,000 while the total equity position is $1,000,000.

Questions: 1. Does Pulsar Inc. qualify to borrow against the credit line? (calculate operating limit, credit limit and ratios)

2. How much would be the maximum amount the bank would lend to Pulsar Inc. under the credit line?

3. Pulsar Inc.s owner has another company where she has an outstanding balance in the Due to Shareholder account. She was advised by the public accountants to register the debt with the Personal Property Security Act (PPSA) just to be on the safe side.

a. Explain the 4 key elements of the PPSA in your own words and why they would benefit Pulsar Inc.s owner.