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

company can value of $190909.1

Step-by-step 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
`= (Current/ Assets)/(current/ ratio)`

plugging all value in above relation

current liabilities
`= (1312500)/(2.2)`

current liabilities = $ 596590.90

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