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rdbroeker · Jan 29, 2010, 02:46 PM

The Petry Company has $1,312,500 in current assets and $525,000 in current liabilities. Its initial inventory level is $375,000, and it will raise funds as additional notes payable and use them to increase inventory. HOW MUCH CAN PETRY'S SHORT-TERM DEBT (NOTES PAYABLE) INCREASE WITHOUT PUSHING ITS CURRENT RATIO BELOW 2.0?

morgaine300 · Jan 29, 2010, 10:14 PM

Please see the guidelines for posting homework problems:
https://www.askmehelpdesk.com/financ...-b-u-font.html

rdbroeker · Jan 30, 2010, 09:36 AM

Originally Posted by morgaine300

Please see the guidelines for posting homework problems:
https://www.askmehelpdesk.com/financ...-b-u-font.html

Sorry... I'm a new user... I didn't see the place to post until after I had already submitted. My apologies.

Clough · Jan 30, 2010, 09:41 AM

Hi, rdbroeker!

If you post what you think is the answer as well as how you arrived at it, you'll be more likely to have someone knowledgeable come along to confirm whether you're correct, and if not, to show you how you can come up with the correct answer.

Thanks!

rdbroeker · Jan 31, 2010, 02:44 PM

Originally Posted by Clough

Hi, rdbroeker!

If you post what you think is the answer as well as how you arrived at it, you'll be more likely to have someone knowledgeable come along to confirm whether or not you're correct, and if not, to show you how you can come up with the correct answer.

Thanks!

I'm learning. It took a bazillion more tries, and then finally it came to me.
You have to increase current liabilities as well as current assets by X to arrive at the given ratio...

ArcSine · Jan 31, 2010, 03:23 PM

Ding, ding, we have a winner!

For the standard expression for current ratio $\frac{CA}{CL}$

... get the problem teed up as the inequality...

$\frac{\text{1,312,500 + x}}{\text{525,000 + x}} \ \geq \ 2.0$

... and then solve it for x (remembering that x in this case represents a positive quantity). You'll end up with a statement that x must be no more than some particular amount--and of course if you set x equal to such amount, the current ratio will be precisely 2.0. Nice job, rdbroeker!

Bjray1 · Sep 17, 2010, 03:28 AM

$262,500 is the correct answer

morgaine300 · Sep 17, 2010, 06:06 PM

Bjray1, the thread is from January. And we also do not just give answers for homework - we try to help them understand it, check their work, etc. You've posted without bothering to even read the entire thread. Read post #2 where the link to the homework guidelines are.