Kelly Industries borrowed $491,000 from Security Bankers to finance the purchase of equipment costing $358,000 and to provide $133,000 in cash. The note states that the loan matures in 20 years, and the principal is to be paid in annual installments of $24,550. The terms of the loan also indicate that Kelly must maintain a current ratio of 2:1 and cannot pay dividends that will reduce retained earnings below $197,000. The balance sheet of Kelly, immediately prior to the bank loan and the purchase of equipment, follows:

Current assets		$ 118,000		Current liabilities		$ 99,000
Noncurrent assets		$ 1,480,000		Long-term liabilities		$ 300,000
				Common stock		$ 983,000
				Retained earnings		$ 216,000
Total assets		$1,598,000		Total liabilities and shareholders equity		$ 1,598,000

The board of directors of Kelly is about to declare a dividend to be paid to the shareholders early next year. After accepting the loan and purchasing the equipment, how large a dividend can the board pay and not violate the terms of the debt covenant? Calculate the current ratio after the bank loan and purchase of equipment.

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