Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

(Liquidity analysis) When firms enter into loan agreements with their bank, it is very common for the agreement to have a restriction on the minimum

image text in transcribed

(Liquidity analysis) When firms enter into loan agreements with their bank, it is very common for the agreement to have a restriction on the minimum current ratio the firm has to maintain. So, it is important that the firm be aware of the effects of their decisions on the current ratio. Consider the situation of Advanced Autoparts (AAP) in 2009. The firm had total current assets of $1,912,723,400 and current liabilities of $1,366,231,000. a. What is the firm's current ratio? 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 1.2? c. If the company needed to raise its current ratio to 1.5 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? C

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Management Of Islamic Finance

Authors: M. Kabir Hassan, Mamunur Rashid

1st Edition

1787564045, 978-1787564046

More Books

Students also viewed these Finance questions