Question

Mukhopadhya Network Associates has a current ratio of 1.60, where the current ratio is defined as follows: current ratio = current assets/current liabilities. The firm's current assets are equal to $1,233,265, its accounts payables are $419,357, and its notes payables are $351,663. Its inventory is currently at $721,599. The company plans to raise funds in the short-term debt market and invest the entire amount in additional inventory. How much can notes payable increase without the current ratio falling below 1.37?

Answer 1

Answer:

It can raise up to $478,290.81 in short-term notes

Explanation:

current ratio 1.60

In this scenario we are adding inventory (assets) and also short term debt (liab)

$\frac{1,233,265 + X}{771020 + X} = 1.37$

1,233,265 + X = 1.37 ( 771,020 + X)

1,233,265 - 771,020 X 1.37 = 1.37X - X

176976.6/ 0.37 = X

X = 478,290.8108