The Nelson Company has $1,196,000 in current assets and $460,000 in current liabilities. Its initial inventory level is $325,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.0

The amount by which Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.0 is $138,000.

Explanation:

From the question, we have:

Initial current assets = $1,196,000

Initial current liabilities = $460,000

Initial inventory level = $325,000

Targeted current ratio = 2.0

Therefore, we have:

Initial current ratio = Initial current assets / Initial current liabilities = $1,196,000 / $460,000 = 2.60

New current liabilities = Initial current assets / Targeted current ratio = $1,196,000 / 2 = $598,000

Expected amount of increase in short-term debt = New current liabilities - Initial current liabilities = $598,000 - $460,000 = $138,000

By implication, we have:

Expected amount of increase in inventory level = Expected amount of increase in short-term debt = $138,000

New inventory level = Initial inventory level + Expected amount of increase in inventory level = $325,000 + $138,000 = $463,000

New current assets = Initial current assets + Expected amount of increase in inventory level = $1,196,000 +$138,000 = $1,334,000

We can now check as follows:

New current ratio = New current assets / New current liabilities = $1,334,000 / $598,000 = 2.23

Therefore, the amount by which Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.0 is $138,000.

whole quiz

1. the sum of all activities involved in getting high-quality products into the marketplace

2.operations

3. the principle of looking at the supply chain as a whole in order to improve the overall flow through the system.

4. produced; performed

5. activities producing tangible products, such as radios, newspapers, buses, and textbooks.

6. activities producing intangible and tangible products, such as entertainment, transportation, and education.

7.   customer focus

8. analyzing a competitor's products to identify desirable improvements

9. the systematic direction and control of the processes that transform resources into finished projects that create value for and provide benefits to consumers.

10. operation management.

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