Calculation of Maximum amount of additional finance that can be borrowed.
BPC anticipates reaching a sales level of $6 million in one year. The company expects a net income during the next year to equal $400,000. Over the past several years, the company has been paying 50k in dividends to its stockholders. The company expects to continue this policy for at least the next year. The actual balance sheet and income statement for BPC are as follows:
BPC Balance sheet as of December 31, 2005
|
Cash
|
200,000
|
Accounts Payable
|
600,000
|
|
Accounts receivable
|
400,000
|
Notes Payable
|
500,000
|
|
Inventories
|
1,200,000
|
Current liabilities
|
1,100,000
|
|
Current assets
|
1,800,000
|
Long-term debt
|
200,000
|
|
Net fixed assets
|
500,000
|
Stockholder's equity
|
1,000,000
|
|
Total assets
|
2,300,000
|
Total Liabilities and equity
|
2,300,000
|
If BPC's banker requires the company to maintain a current ratio equal to 1.6 or greater, what is the max amount of additional financing that can be in the form of bank borrowings (notes payable)? What other potential sources of financing are available to the company?