Question

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.)

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 :)

Comment for further doubts

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