The Nelson Company has $1,190,000 in current assets and $425,000 in current liab

Question

The Nelson Company has $1,190,000 in current assets and $425,000 in current liabilities. Its initial inventory level is $255,000, and it will raise funds as additional notes payable and use them to increase inventory. 1.How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.1? Round your answer to the nearest cent. $ 2.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. x

Explanation / Answer

current ratio = current assets/current liabilities so we want to do (1190000+x)/(425000+x)=2.1 1.1x=297500 x=270455 quick ratio = current assets - inventory all over liabilities so (1190000-255000)/(425000+270455)=1.34

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