The financial manager of the AppleCart Company has prepared the following pro forma balance sheet for the next month:

a. After preparing this budget, the financial manager learned that Apple Cart needs to maintain a current ratio of 3 (current assets are three times the current liabilities) at all times. If the only way this can be accomplished is to reduce the amount of cash on hand, propose an alternative pro forma balance sheet that satisfies this constraint.

b. How does the reduction in cash on hand alter AppleCart’s risk?

c. Propose two other approaches AppleCart can use to satisfy the current ratio constraint. What risks are involved in each?

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Assets Cash Accounts receivable Inventory Plant and equipment Total assets Liabilities and Equity $150 Accounts payable $200 50 Long-term debt 200 200 Common equity 600 600 Total liabilities and equity $1,000 $1,000