The Nelson 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 payble and use them to increase inventory.
Required:
Question 1: How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.0?
Question 2: What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds?
Note: Be sure to show how you arrived at your answer.