Question

The Nelson Company has $1,312,500 in current assets and $525,000 in current liabilities. Its initial inventory level is $380,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.2

Answer 1

Answer:

company can value of $190909.1

Explanation:

Given data:

current assets = $1,312,500

current liabilities =  $525,000

initial inventory level is $380,000

current ratio = 2.2

current liabilities is calculated as $= \frac{Current/ Assets}{current/ ratio}$

plugging all value  in above relation

current liabilities$= \frac{1312500}{2.2}$

current liabilities = $ 596590.90

and we know  current liabilities is  $525,000. Thus company can value of $190909.1