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a company has total current assets of $250,000 and accounts payable of $100,000. if their bank has imposed a covenant requiring a current ratio of 1.25 or better, what is the maximum level of notes payable allowable

Sagot :

Here the maximum level of notes payable allowable will be $100000.

Long-term obligations known as notes payable represent the sums that a firm owes its financiers, including banks and other financial institutions as well as alternative funding sources like friends and family. They are considered long-term since they are due after a year, albeit often within five years.

Calculation of Notes payable is done as follows:

Current Ratio=[tex]\frac{Current Asset}{Current liabilities}[/tex]

Now let current liabilities be 'z'

Therefore:

1.25=250000/z

Thus z=200000

Current liabilities=$200000

Here Current liabilities=Account Payable + Notes payable +

200000=100000+Notes Payable

Notes Payable=200000-100000

=$100000

Therefore the maximum level of notes payable allowable is $100000.

To know more about Notes payable click here:

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