Question
The Nelson Company has $1,444,500 in current assets and $535,000 in current liabilities. Its initial inventory level is $400,000, and it will raise funds as
The Nelson Company has $1,444,500 in current assets and $535,000 in current liabilities. Its initial inventory level is $400,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.2? Do not round intermediate calculations. Round your answer to the nearest dollar.
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What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Do not round intermediate calculations. Round your answer to two decimal places.
2
The Morris Corporation has $400,000 of debt outstanding, and it pays an interest rate of 8% annually. Morris's annual sales are $2 million, its average tax rate is 40%, and its net profit margin on sales is 4%. If the company does not maintain a TIE ratio of at least 3 to 1, then its bank will refuse to renew the loan, and bankruptcy will result. What is Morris's TIE ratio? Do not round intermediate calculations. Round your answer to two decimal places.
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