So, the firm needs to be aware of the effects of its decisions on the current ratio in order to maintain compliance with the loan contract. Consider the situation of
Advanced AutopartsAdvanced Autoparts
(AAPAAP)
in
20092009.
The firm had total current assets of
$1 comma 768 comma 811 comma 2001,768,811,200
and current liabilities of
$ 1 comma 360 comma 624 comma 000$1,360,624,000.
a. What was the firm's current ratio at the end of
20092009?
b. If the firm were to expand its investment in inventory and finance the expansion by increasing accounts payable, how much could it increase its inventory without reducing the current ratio below
1.21.2?
c. If the company needed to raise its current ratio to
1.51.5
by reducing its investment in current assets and simultaneously reducing accounts payable and short-term debt, how much would it have to reduce current assets to accomplish this goal?
Question content area bottom
Part 1
a. What was the firm's current ratio at the end of
20092009?
The firm's current ratio is
1.31.3.
(Round to one decimal place.)
Part 2
b. If the firm were to expand its investment in inventory and finance the expansion by increasing accounts payable, how much could it increase its inventory without reducing the current ratio below
1.21.2?
The additional amount of inventories (accounts payable) that the company can take is
$680,312,000680,312,000.
(Round to the nearest dollar.)
Part 3
c. If the company needed to raise its current ratio to
1.51.5
by reducing its investment in current assets and simultaneously reducing accounts payable and short-term debt, how much would it have to reduce current assets to accomplish this goal?
The amount of inventories (accounts payable) that the company needs to reduce is
$544,249,600544,249,600.
(Round to the nearest dollar.)