100% En Fri Dec 89:51:42 PM a CengRowNoW onine teaching andin esource from Cenpa

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100% En Fri Dec 89:51:42 PM a CengRowNoW onine teaching andin esource from Cenpag nment: Week 2 Homework Assignment Score: 66.66% il instructor Save Exit Submit Assignment for Grading ons Problem 3-09 ial . Question 7 of 9 Hint(s) I Check My Work eBlook O Problem 3-9 Current and Quick Ratios The Neison Company has $2,100,000 in current assets and s700,000 in current liablities. Its initial inventory level is $420,000, and it will raise funds as additional notes payable and use them to increase inventory. payable) increase without pushing its current ratio below 1.7? Round your answer to the nearest cent. 2. what wll be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Round your answer to two decimal places. Hide Feedbuck Incorrect Hint(s) ICheck My Worlk 0- Icon Key Problem 3-09 Question 7 of9 xit Submit Assignment for Grading structor

Explanation / Answer

Question 1). Solution :- Let D denotes the increase in short-term debt (notes payable) of Nelson company.

Current ratio = Current assets / Current liabilities.

1.7 = (2100000 + D) / (700000 + D)

1.7 * (700000 + D) = (2100000 + D)

1190000 + 1.7 D = 2100000 + D

1.7 D - D = 2100000 - 1190000

0.7 D = 910000

D = 910000 / 0.70

D = $ 1300000.

Conclusion :- The short-term debt (notes-payable) of Nelson company can increase by $ 1300000 without decreasing the current ratio below 1.7 : 1.

Question 2). Solution :- Calculation of Quick ratio (after raising of maximum amount of short-term debt) :-

= (Current assets - inventory) / (Current liabilities + Short-term debt)

= (2100000 - 420000) / (700000 + 1300000)

= 1680000 / 2000000

= 0.84

Conclusion :- Quick ratio (after raising of the maximum amount of short-term debt) = 0.84 (approx).

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