The Stewart Company has $2,295,000 in current assets and $826,200 in current liabilities. Its initial inventory...

The Stewart Company has $2,295,000 in current assets and $826,200 in current liabilities. Its initial inventory level is $504,900, and it will raise funds as additional notes payable and use them to increase inventory. How much can its short-term debt (notes payable) increase without pushing its current ratio below 2.0? Round your answer to the nearest dollar.

Expert Solution

Current Assets = 2,295,000

Current Liability = 826,200

Inventory = 504,900

Current Ratio = (Current asset + x) / (Current Liability + x)

2 = (2295000 + x)/(826200 + x)

1652400 + 2x = 2295000 + x

x = $642600 Answer

The maximum increase in short term debt to finance inventory without lowering current ratio below 2 should be 642600

jeff jeffy answered 2 years ago

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