Question

The Nelson Company has $1,667,500 in current assets and $575,000 in current liabilities. Its initial inventory level is $402,500, 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 1.3? Round your answer to the nearest cent.

$  

What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Round your answer to two decimal places.

Answer 1

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1417 х 18 01 2020 FK269 FG FH FJ FM FF FI FK FL FN NELSON 257 258 259 CURRENT ASSETS = 1667500 CURRENT LIABILITIES = 575000 INVENTORY = 260 402500 261 262 CURRENT RATIO SHOULD BE 1.3 SUPPOSE AMOUNT OF NOTES PAYABLE = X, SO INCREASE IN INVENTORY IS ALSO = X 263 264 CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITIES 265 CURRENT RATIO = (1667500 + X)/(575000 + X) 266 (1667500 + X)/(575000 + X) 267 1.3 = 1.3(575000 + X) = 1667500 + X 747500 + 1.3 (X) = 1667500 + X 268 269 0.3 (X) = 920000 270 3066666.67 271 272 SO, SHORT TERM DEBT = NOTES PAYABLE = 273 3066666.67 274 275 REVISED INVENTORY = 402500 + 3066666.67 = 3469166.67 276 CURRENT ASSETS = 1667500 + 3066666.67%3D 4734166.67 277 CURRENT LIABILITIES = 575000 + 3066666.67 = 3641666.67 278 QUICK RATIO = CURRENT ASSETS - INVENTORY/CURRENT LIABILITIES 279 (4734166.67-3469166.67)/3641666.67 = 280 QUICK RATIO = 0.35 281 282 dupont | DIFF ANALYSIS.. OO FIFO CASH BUDGET budgel 45 days | tycle ROE, BV MV ralio | VARIANCE BEP, OL FL ratios DETROIT B-5 profit luss | lloal SALES DUDGET