Homework hmwk 6 Score 0 of 1 pt Bookmatch 45 bookstatic Save

Homework: hmwk 6 Score: 0 of 1 pt Bookmatch 4-5 (book/static) Save 1 of 6 (0 complete) HW Score: 0%, 0 of 6 pts Question Help Evaluating iquidlity) Te Allen Marble Company has a target current ratio of 2.0 but has experienced some difficulties financing its expanding sales in the past few months. At present the firm has current assets of $2.5 million and a current ratic of 2.5. If Allen expands its receivables and inventories using its short-term line of credit, how much additional short-term funding can it borrow before its current ratio standard is reached? The addition to current assets is (Round to the nearest dallar:)

Solution

Current ratio = current asset/ current liabilities

Current liabilities = current asset/ current ratio

= $2.5 Million/2.5 = $1 Million

To reach the desired current ratio of 2

Short term funding of $.25 Million will be required

then current ratio = current asset /current liablilites

= $2.5 Million /1.25 Million = 2