Homework Answers
a) Before Payment
Current Assets = $12855
Current Liabilities = $7450
Working Capital =Current Assets - Current Liabilities
=$12855 - $7450
=$5405
Current Ratio = Current Assets /Current Liabilities
=12855/7450
=1.7
After Payment
Current Assets = $12855 - $3830 (Payment of Accounts
Payable will reduce cash/bank)
=$9025
Current Liabilities =$7450 - $3830 (Payment of Accounts
Payable)
=$3620
Working Capital =Current Assets - Current Liabilities
=$9025 - $3620
=$5405
Current Ratio =Current Assets /Current Liabilities
=9025/3620
=2.4
| Do not prepay Accounts Payable | Prepay Accounts Payable | |
| Working Capital | $5405 | $5405 |
| Current Ratio | 1.7 | 2.49 |
b) Without Loan
Current Assets = $12855
Current Liabilities = $7450
Working Capital =Current Assets - Current Liabilities
=12855 - $7450
=$5405
Current Ratio = Current Assets /Current Liabilities
=12855/7450
=1.7
With Loan
Current Assets = $12855 + $6000 = $18855 (Loan will
increase cash/bank)
Current Liabilities = $7450 + $6000 = $13450 (After Loan)
Working Capital = Current Assets - Current Liabilities
=$18855 - $13450
=$5405
Current Ratio = Current Assets /Current Liabilities
=18855/13450
=1.4
| Without Loan | With Loan | |
| Working Capital | $5405 | $5405 |
| Current Ratio | 1.7 | 1.4 |
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