Question
The Nelson Sheet Metal Company has current assets of $2.0 million and current liabilities of $0.5 million. The firm is in need of additional inventory
The Nelson Sheet Metal Company has current assets of $2.0 million and current liabilities of $0.5 million. The firm is in need of additional inventory and has an opportunity to borrow money on a short-term note with which it can buy the needed material. However, a previous financing agreement prohibits the company from operating with a current ratio below 1.8. What is the maximum amount of inventory Nelson can obtain in this manner? (Hint: The note will be a current liability and the purchased inventory will be a current asset of the same size, X. Form the limiting current ratio in terms of X and solve.) Round your answer to the nearest dollar. An answer of $1.2 million should be entered as 1,200,000.
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