Seneca Corporation has the following balance sheet accounts immediately preceding an investing and financing decision:
A long-term debt covenant specifies that Seneca's debt/equity ratio cannot be greater than 1.0 and current ratio cannot be less than 2.0.
Seneca is going to invest $600,000 in a new machine that will keep Seneca Corporation in an excellent competitive position in a very competitive industry. In order to finance this investment, Seneca will use its cash, issue long-term debt, and issue common stock. However, besides having to adhere to the debt covenants, Mr. Seneca, the sole owner of Seneca Corporation, will not issue more than $100,000 of common stock so that he can retain at least a 50% ownership in his corporation.
Can Seneca Corporation finance the $600,000 investment and still adhere to the debt covenants and allow Seneca to retain at least 50% ownership? If Seneca cannot finance the machine within the parameters given, suggest possible means for Seneca to finance the needed acquisition of the machine.

Question

Seneca Corporation has the following balance sheet accounts immediately preceding an investing and financing decision:
  A long-term debt covenant specifies that Seneca's debt/equity ratio cannot be greater than 1.0 and current ratio cannot be less than 2.0.
Seneca is going to invest $600,000 in a new machine that will keep Seneca Corporation in an excellent competitive position in a very competitive industry. In order to finance this investment, Seneca will use its cash, issue long-term debt, and issue common stock. However, besides having to adhere to the debt covenants, Mr. Seneca, the sole owner of Seneca Corporation, will not issue more than $100,000 of common stock so that he can retain at least a 50% ownership in his corporation.
Can Seneca Corporation finance the $600,000 investment and still adhere to the debt covenants and allow Seneca to retain at least 50% ownership? If Seneca cannot finance the machine within the parameters given, suggest possible means for Seneca to finance the needed acquisition of the machine.

Quizplus · Accepted Answer

The Answer of Seneca Corporation has the following balance sheet accounts immediately preceding an investing and financing decision:
  A long-term debt covenant specifies that Seneca's debt/equity ratio cannot be greater than 1.0 and current ratio cannot be less than 2.0.
Seneca is going to invest $600,000 in a new machine that will keep Seneca Corporation in an excellent competitive position in a very competitive industry. In order to finance this investment, Seneca will use its cash, issue long-term debt, and issue common stock. However, besides having to adhere to the debt covenants, Mr. Seneca, the sole owner of Seneca Corporation, will not issue more than $100,000 of common stock so that he can retain at least a 50% ownership in his corporation.
Can Seneca Corporation finance the $600,000 investment and still adhere to the debt covenants and allow Seneca to retain at least 50% ownership? If Seneca cannot finance the machine within the parameters given, suggest possible means for Seneca to finance the needed acquisition of the machine.

Seneca Corporation Has the Following Balance Sheet Accounts Immediately Preceding