A.B.C. Company

Abstract

Mr. Yale is Vice-President of the lead bank for a group of sixteen banks that extend individual short term credit lines totalling $26 million to A. B. C. Company. On August 1, 1971, Mr. Yale is considering whether the banks should honor the company s request to increase the short term credit line to $40 million for the coming fiscal year. This would represent a 54% increase in short term lines of credit and Mr. Yale is pondering whether the A. B. C. Company should be required to sell more long term debt or equity rather than again increasing their short term lines. Although the A.B.C. Company has repaid its short term loans to each of the sixteen banks on a regular annual basis, the company has not repaid all short term bank debt at the same time for the last 20 years.