Question

22. The RRR Company has a target current ratio of 3.2. Presently, the current ratio is...

22. The RRR Company has a target current ratio of 3.2. Presently, the current ratio is 4.1 based on current assets of $12,956,000. If RRR expands its fixed assets using short-term liabilities (maturities less than one year), how much additional funding can it obtain before its target current ratio is reached? (Round your answer to the nearest dollar.)

Homework Answers

Answer #1

Current ratio of RR = 4.10

Current assets = $12,956,000

Current liabilites of RRR = Current assets / current ratio = 12,956,000 / 4.10 = $ 3,160,000

Target current ratio = 3.20

Keeping current assets same,

Target Current liabilites of RRR = Current assets / target current ratio = 12,956,000 / 3.20 = $ 4,048,750

RRR is looking to fund fixed assets with current liabilites.

Therefore, additional funding can it obtain before its target current ratio is reached = 4,048,750 - 3,160,000 = $ 888,750

Thumbs up please if satisfied. Thanks :)

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