he Nelson Company has $1,400,000 in current assets and $500,000 in current liabilities. Its initial inventory level is $400,000, 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 1.4? Round your answer to the nearest cent.
Before purchase of additional inventory:
Current assets = $1,400,000
Current liabilities = $500,000
Let additional inventory of $x is made through short-term debt.
After purchase of additional inventory:
Current assets = $1,400,000 + $x
Current liabilities = $500,000 + $x
Current ratio = Current assets / Current liabilities
1.40 = ($1,400,000 + $x) / ($500,000 + $x)
$700,000 + 1.40 * $x = $1,400,000 + $x
0.40 * $x = $700,000
$x = $1,750,000
Additional inventory purchased = $1,750,000
he Nelson Company has $1,400,000 in current assets and $500,000 in current liabilities. Its initial inventory...
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