Miller Inc. has requested a new line of credit to address the seasonality of revenues. The request is for an $12,500,000

[answerhappygod]

Miller Inc. has requested a new line of credit to address the
seasonality of revenues. The request is for an $12,500,000 demand
loan and resulted in your lender requiring a working capital
analysis. You have been assigned the task of calculating the
expected line of credit requirement based on the information
provided below. The lender has suggested a covenant which limits
the current ratio including any demand bank loan to no worse than a
2:1. Given this is a future oriented analysis - use 360 days as a
year. Your task: a) Prepare a schedule of working capital that
determines what the maximum loan amount is which meets a Current
Ratio of 2:1 b) If the maximum loan was not allowed to exceed 75%
of Accounts Receivable and 25% of Inventory determined in a) above
- is the loan request above covered with adequate security? Show
calculation and decision. c) If the loan limit is below the
$12,500,000 requested above, what would the accounts payable days
to pay be revised to reach the proposed limit.
Assets
Accounts receivable
45 days to collect
Inventory
120 days on hand (seasonal variation)
Accounts payable
60 days to pay
Short term bank loan
TO BE DETERMINED
Income Statement
Revenue - net 30 day selling terms
120,000,000
Cost of sales
58% of revenues
Key Performance Indicator
Current Ratio
> 2:1