Final answer:
The working capital ratio of Paddington, Inc., which is 1.5, will remain the same if they use $5,000 of their cash to reduce their accounts payable. The ratio stays constant because the decrease in current assets matches the decrease in current liabilities, maintaining the proportionate relationship.
Step-by-step explanation:
The subject of this question is regarding the calculation of the working capital ratio in the context of financial management for a business. Paddington, Inc. has a working capital ratio of 1.5, and is considering using part of its cash to pay off $5,000 of its accounts payable. The working capital ratio is a measure of a company's liquidity and is calculated by dividing current assets by current liabilities.
When Paddington, Inc. uses $5,000 to reduce its accounts payable, both its current assets (due to the reduction in cash) and current liabilities (due to the reduction in accounts payable) will decrease by the same amount. While this reduces both the numerator and the denominator of the working capital ratio, the ratio itself will remain the same because the proportionate relationship between current assets and current liabilities does not change. Therefore, the correct answer is: b. will remain the same.