Question

Working capital: Mukhopadhya Network Associates has a current ratio of 1.60, where the current ratio is defined as follows: Current ratio = Current assets/Current liabilities. The firm's current assets are equal to $1,233,265, its accounts payables are $419,357, and its notes payables are $351,663. Its inventory is currently at $721,599. The company plans to raise funds in the short-term debt market and invest the entire amount in additional inventory. How much can notes payable increase without the current ratio falling below 1.50?

please breakdown answer

Answer 1

Current assets = 1233265
Current liabilities = 419357+351663 = 771020
Now, Short term borrowed fnds be x, which increase the current assets and liabilities
Revised current assets = 1233265+x
Revised Current liabilities = 771020+x
Current ratio = Revised CA Revised CL
1.5 = 1233265+x / 771020 +x
1.5x- x = 1233265- 1156530
0.5x = 76735
x = 153470
Amount borrowed shall be maximum $ 153470.