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

question 27

Essay

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 and keeps the rest as cash or short-term investment, what would be its current ratio?
a. 3.24
b. 1.76
c. 1.31
d. 1.50

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Definitions:

Between-group

Pertaining to comparisons or differences that are made between distinct groups in an experiment or study.

Error

Error, in a statistical context, signifies the difference between the observed value and the true value.

F-ratio Distribution

A probability distribution used in ANOVA tests, representing the ratio of two variances to assess the significance of group differences.

Positively Skewed

Describes a distribution with a tail that extends to the right, indicating a majority of the data points are situated on the left side of the distribution.