Problem 3-9

Current and Quick Ratios

The Nelson Company has $2,100,000 in current assets and $700,000 in current liabilities. Its initial inventory level is $420,000, and it will raise funds as additional notes payable and use them to increase inventory.

1. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 1.6? Round your answer to the nearest cent.

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2. What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Round your answer to two decimal places.