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

question 30

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 the entire $100,000 of the borrowed funds in equipment, what is the maximum amount of current liabilities it could have without violating the debt contract?

• A)$146,667
• B)$102,000
• C)$80,000
• D)$125,333

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