Suppose the manufacturing company in E2-10 signed a debt covenant specifying that current assets must exceed current
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Suppose the manufacturing company in E2-10 signed a debt covenant specifying that current assets must exceed current liabilities by $12,000. Assume further that in early January of 1997 the company plans to purchase a $5,000 piece of machinery and has three possible methods of paying for it: (1) cash, (2) short-term note payable, or (3) long-term note payable. Compute the effect of each of the three alternatives on the difference between current assets and current lia¬ bilities, and discuss which method seems to be the most feasible.
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