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    Additional Short-Term Funding

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    B.J. Industries has a current ratio of 2.5, with $2.5 million in current assets. Due to sales growth, the company wants to expand accounts receivable and inventories by taking on additional short-term debt. If B.J. Industries wants to maintain a minimum current ratio of 2.0, what is the maximum additional short-term funding it can borrow?

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    Solution Preview

    Current Ratio = 2.5
    CA = 2,500,000

    Using Current ratio formula, we have:

    2.5 = 2,500,000/Current Liabilities(CL)

    CL = 2,500,000/2.5 = ...

    Solution Summary

    The solution computes additional Short-Term funding the company can borrow using AFN equation.