Your Board of Directors were reviewing the financial performance to date and were not

happy as it became apparent the firm was not compliance with its covenants - which was a current ratio of 1.5 or better. The current working capital position of the company is listed below:

Replacing the old management team, the new management team outlined their plans to get matters back in line. Steps taken incorporate expected revenues of $45,000,000 and realized gross profits of 52%.Performance objectives using a 360 day year:are:

1. Collect receivables on average in 36 days
2. Improve turnover of inventory to 4.5 times
3. Pay accounts payable in 60 days
4. Decrease deferred revenue by 40% by completing revenue contracts
5. Pay the 50% of income taxes payable now due
6. Include the $200,000 increase in current portion of long-term debt
7. Pay down short term loan to $1,500,000

REQUIRED: (Show all work)

1 - Does the plan achieve covenant compliance? (15 marks)

2 - What other steps could be taken to improve compliance (5 marks)