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Current ratio

ABC Corporation's current ratio is currently 1.75 to 1. The firm's current ratio cannot fall below 1.5 to 1 without violating agreements with its bondholders. If current liabilities are presently $250 million, the maximum new short-term debt that can be issued to finance an equivalent amount of inventory expansion is:
A) $ 41.67 million.
B) $375.00 million.
C) $125.00 million.
D) $ 62.50 million.

Solution Preview

The present current ratio is 1.75:1.
Present current liabilities are 250 million. The present ...

Solution Summary

The solution explains how to calculate the maximum amount of short term debt that can be issued given the current ratio.