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Improving Armhurst Corporation's Liquidity

Armhurst Corporation is the maker of fine fitness equipment. Armburst's bank has been pressuring the firm to improve its liquidity. Which of the following actions proposed by the CFO do you believe will actually achieve this objective? Why or why not?

a. Sell new equity and use the proceeds to purchase a new plant site.

b. Use cash and marketable securities to pay off short-term bank borrowings and accounts payable.

c. Borrow long-term and use the proceeds to pay off short-term debt.

d. Sell surplus fixed assets and use the proceeds in marketable securities.

Solution Preview

Liquidity can be improved increasing the working capital, Working Capital = Current Assets- Current Liabilities

a. Sell new equity and use the proceeds to purchase a new plant site.

It will not have any impact on working capital as the money raised from the equity is used in ...

Solution Summary

The solution discusses ways in which the CFO of Armhurst Corporation can attempt to improve its liquidity.

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