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?

• A)$45,333
• B)$146,667
• C)$125,333
• D)$113,333

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Definitions:

Dissatisfied Customers

Individuals who feel their expectations have not been met by a product or service, often leading to complaints or returns.

Responsiveness

The ability of a company, system, or individual to quickly and effectively respond to customer requests, market changes, or other demands.

Service Quality

The assessment of how well a delivered service matches the expectations of the customer, often a critical component in customer satisfaction.

Customer Contact Audit

An evaluation of all the points at which a business interacts with its customers to assess and improve service quality and customer experience.