Answer: $3,250,000
Explanation:
The Current Ratio is used to calculate if the company's current assets can pay off it's current Liabilities.
It is calculated by dividing Current Assets by Current Liabilities.
The company plans to increase it's note payable to enable it but more Inventory. We can therefore assume that the increase in notes Payable (current Liability) will be the same as the increase in inventory (current asset) since the former is funding the latter.
The company does not want the current Ratio dropping below 1.2 so 1.2 is the ideal ratio.
The formula will therefore be;
1.2 = (Current Assets + Change in Notes Payable ) / Current Liabilities + Change in Notes Payable
1.2 = (1,250,000 + Change in Notes Payable) / 500,000 + Change in Notes Payable
600,000 + 1.2(Change in Notes Payable) = 1,250,000 + Change in Notes Payable
1.2( Change in Notes Payable) - Change in Notes Payable = 1,250,000 - 600,000
0.2 (Change in Notes Payable) = 650,000
Change in Notes Payable = $3,250,000
