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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 Summary

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

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Given:
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 = ...

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