# ​(Evaluating liquidity​) Aylwa

​(Evaluating liquidity​) Aylward Inc. currently has ​\$2,145,000in current assets and ​\$859,000 in current liabilities. The​company’s managers want to increase the​ firm’s inventory, whichwill be financed by a​ short-term note with the bank. What level ofinventories can the firm carry without its current ratio fallingbelow 2.1​?

The cost of the additional inventory financed with the​short-term note is \$____? (Round to the nearest dollar)

 Answer =1 Current Ratio = Current Assets / Current Liabilities Exuisting Current Ratio = Current Assets = \$21,45,000 Divide By “/”By Current Liabilities = \$8,59,000 Current Ratio = 2.50 Current Ratio = 2.50 Company want t maintain the ratio of 2.1 with increase in So it means \$ 2,145,000 / \$ 859,000 = 2.50 Let x be the amount borrowed, which is used to buyinventory. (\$2,145 000 + x) / (\$859 000 + x) = 2.1 Multiply both sides by the denominator to get ridof the fractions. (\$2 145 000 + x) = 2.1 * (\$859 000 + x) Expand and simplify \$2 145 000 + x = 2.1 * \$859 000 + 2.1x \$2 145 000 + x = \$1 803 900 + 2.1x Move all terms with x to the left and all otherterms to the right. Remember to switch signs when you switchsides. x – 2.1x = \$1 803 900 – \$2 145 000 -1.1x = -\$ 341 100 0 Divide both sides by -1.1 x = \$310,091 So the maximum that should be borrowed to buyinventory is \$310,091 Answer = \$3,10,091 Note: Checking the answer with addition of buyingof inventory Exuisting Purchase of inventory with Short termNote Total Current Ratio = Current Assets = \$21,45,000 \$3,10,091 \$24,55,091 Divide By “/”By Current Liabilities = \$8,59,000 \$3,10,091 \$11,69,091 Current Ratio = 2.50 2.10 Current Ratio = 2.50 2.10

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