Current asset 600, current lab 1500. How much we can borrow fm bank with out reducing the current ratio bellow 1:5
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Current asset 600, current lab 1500. How much we can borrow fm bank with out reducing the current ratio bellow 1:5
With your pre-borrowing CR standing at 2 : 5, I assume* that none of the proceeds "x" of the new debt will be deployed into current assets (e.g. inventory, cash in bank). So start with
, and solve for x.
*Can you see why that assumption is necessary? If the new debt proceeds were placed into current assets, it would increase the CR from its present level.
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