2018 Fall Bus Fin 11am Molly C e 1 9/15/18 11:09 PM Homework: Chapter 4 Homework

Question

2018 Fall Bus Fin 11am Molly C e 1 9/15/18 11:09 PM Homework: Chapter 4 Homework lot 11 (7 complete) .Hw Score: 48.18%, 5.3 of 1 1 pts 09/17/18 Score: 0 of 1 pt 09/05/181 Problem 4-1 (similar to Help 48.18% (5 (Evaluating liquidity) Aylward Inc currently has $2,143,000 in current assets and $827,000 in current labilites. The company's managers want to increase the firm's inventory, which will be finanoed by a short-term note with the bank What level of inventories can the frm carry without its aurrent rato falling below 2.1 Unlimited The cost of the additional inventory financed with the short-term noto is (Round to the nearest dollar.) All parts showing Clear Al

Explanation / Answer

Current Scenario:

Current Assets = $2,143,000
Current Liabilities = $827,000

Let additional inventory financed by short-term note be $x

Expected Scenario:

Current Assets = $2,143,000 + $x
Current Liabilities = $827,000 + $x
Current Ratio = 2.10

Current Ratio = Current Assets / Current Liabilities
2.10 = ($2,143,000 + $x) / ($827,000 + $x)
$1,736,700 + 2.10 * $x = $2,143,000 + $x
1.10 * $x = $406,300
$x = $369,364

The cost of the additional inventory financed with short-term note is $369,364

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