Question

"ng liquidity​) Aylward Inc. currently has ​$ in current assets and ​$ in current liabilities. The​ company's managers want to increase the​ firm's inventory, which will be financed by a​ short-term note with the bank. What level of inventories can the firm carry without its current ratio falling belo"

Answer 1

Answer: $209,500

Step-by-step explanation:

Current ratio = Current assets / Current liabilities

They plan to increase current assets by increasing inventory. They plan to do this by using a short term note which is a current liability. Both the numerator and the denominator will therefore increase.

Assume the maximum inventory increase to be:

2.20 = (2,161,000 + x) / (868,000 + x)

2.20 * 868,000 + x = 2,161,000 + x

1,909,600 + 2.20x = 2,161,000

2.20x - x = 2,161,000 - 1,909,600

1.20x = 251,400

x = 251,400 / 1.2

x = $209,500