Aspero, Inc., has sales of approximately $500,000 per year. Aspero requires a short-term loan of $100,000 to finance its working capital requirements. Two banks are considering Aspero's loan request but each bank requires certain minimum conditions be satisfied. Bank America requires at least a 25% gross margin on sales, and Bank Boston requires a 2:1 current ratio. The following information is available for Aspero for the current year: Sales returns and allowances are 10% of sales. • Purchases returns and allowances are 2% of purchases. • Sales discounts are 2% of sales. • Purchase discounts are 1% of purchases. • Ending inventory is $138,000. . Cash is 10% of accounts receivable. • Credit terms to Aspero's customers are 45 days. • Credit terms Aspero receives from its suppliers are 90 days. • Purchases for the year are $400,000. • Ending inventory is 38% greater than beginning inventory. • Accounts payable are the only current liability. Required: Assess whether Aspero, Inc., meets the credit constraint for a loan from either or both banks. Show computations.

Aspero, Inc., has sales of approximately $500,000 per year. Aspero requires a short-term loan of $100,000 to finance its working capital requirements. Two banks are considering Aspero's loan request but each bank requires certain minimum conditions be satisfied. Bank America requires at least a 25% gross margin on sales, and Bank Boston requires a 2:1 current ratio. The following information is available for Aspero for the current year: Sales returns and allowances are 10% of sales. • Purchases returns and allowances are 2% of purchases. • Sales discounts are 2% of sales. • Purchase discounts are 1% of purchases. • Ending inventory is $138,000. . Cash is 10% of accounts receivable. • Credit terms to Aspero's customers are 45 days. • Credit terms Aspero receives from its suppliers are 90 days. • Purchases for the year are $400,000. • Ending inventory is 38% greater than beginning inventory. • Accounts payable are the only current liability. Required: Assess whether Aspero, Inc., meets the credit constraint for a loan from either or both banks. Show computations.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter22: Providing And Obtaining Credit

Section: Chapter Questions

Problem 7P: Effective Cost of Short-Term Credit Yonge Corporation must arrange financing for its working capital...

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