Solved

Jake Company Borrowed $100,000 from Guaranty Trust Bank to Finance

question 15

Multiple Choice

Jake Company borrowed $100,000 from Guaranty Trust Bank to finance the purchase of new equipment. The loan contract provides for a 12 percent annual interest rate and states that the principal must be paid in full in ten years. The contract also requires that Jake maintains a current ratio of 1.5:1. Before Jake borrowed the $100,000, the company's current assets and current liabilities were $120,000 and $68,000 respectively.
If Jake invests $50,000 of the borrowed funds in equipment and keeps the rest as cash or short-term investment, what is the maximum amount of current liabilities it could have without violating the debt contract?

Understand the importance of establishing clear communication about confidentiality, counseling goals, and costs with clients.

Recognize when to refer clients to other professionals like psychotherapists for issues outside the nutrition counselor’s scope of practice.

Grasp legal and ethical considerations specific to nutrition and dietetics, including when accepting gifts from clients is appropriate.

Develop and evaluate strategies for starting and marketing a private practice in nutrition, considering client recruitment, focus, and location.

Definitions:

Cost of Equity

The return a company is expected to provide to its shareholders to compensate them for the risk of investment.

Debt

An amount of money borrowed by one party from another, typically for large medium or long-term financial projects, with an obligation to pay back with interest.

Bankruptcy

A judicial process concerning an individual or company that cannot settle its due financial obligations.

M&M Without Taxes

A part of Modigliani and Miller's theory on corporate finance that suggests market value of a firm is unaffected by its capital structure in a tax-free environment.