Debt Capacity

Question 1

Maximum Amount of Debt Based on Assets

SHORT TERM

Answer 1

Accounts Receivable
Inventory
Maximum amount of short term debt

Question 2

Maximum Amount of Debt Based on Assets

LONG TERM

Answer 2

Land
Building
Equipment
Maximum amount of long term debt

Question 3

Maximum Amount of Total Debt Based on Current Ratio

Answer 3

Current Assets
Current Ratio
Maximum Amount of Current Liabilities
Non-Interest Bearing
Maximum Amount of Short Term Debt
Long Term Debt

Question 4

Maximum amount of debt based on book value D/E ratio and current ratio

Answer 4

BV of total assets
D/E ratio
Maximum amount of liabilities
Non-interest bearing
Maximum amount of interest bearing debt
Maximum amount of short-term debt (see above)
Long-term debt (plug)
Totals

Question 5

Maximum amount of debt based on interest coverage and current ratio

Answer 5

EBIT
Interest Coverage Ratio
Maximum Interest
Maximum amount of short term debt(above)
Long term debt (plug)