Question

# The Nelson Company has \$1,428,000 in current assets and \$510,000 in current liabilities. Its initial inventory...

The Nelson Company has \$1,428,000 in current assets and \$510,000 in current liabilities. Its initial inventory level is \$335,000, 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 1.8? Do not round intermediate calculations. Round your answer to the nearest dollar.

\$

What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Do not round intermediate calculations. Round your answer to two decimal places.

Current ratio = Current asset / Current Liabilities

1.8 = 1,428,000/ ( 510,000 + short term debt)

510,000 + Short term debt = 1,428,000/1.8

Short term debt = 793,333.33 - 510,000

= \$ 283,333

Therefore maximum short term debt that can be raised is \$283,333

Quick ratio

= ( Current assets - Inventory)/ Current Liabilities

Total current liabilities = 510,000 + 283,333 = \$793,333

= ( 1,428,000 - 335,000)/793,333

= 1.38