**Hoffman Paper Company Balance Sheet Analysis**Hoffman Paper Company, a profitable distributor of stationery and office supplies, has an agreement with its banks allowing it to borrow money on a short-term basis. This is to finance its inventories and accounts receivable. The agreement requires Hoffman to maintain a current ratio of 1.5 or higher and a debt ratio of 50% or lower.**Balance Sheet Details:****Assets** - Cash: $55,000 - Accounts receivable: $150,000 - Inventory: $255,000 - Fixed assets (net): $680,000 - **Total assets**: $1,140,000 **Liabilities and Stockholders’ Equity** - Current liabilities: $210,000 - Long-term debt: $300,000 - Stockholders’ equity: $630,000 - **Total liabilities and stockholders’ equity**: $1,140,000 **Analysis Task:**Using the balance sheet provided, determine how much additional money Hoffman could borrow to invest in inventory and accounts receivable without breaching the borrowing agreement. Maintain a current ratio of at least 1.5 and a debt ratio of 50% or lower. Round your answer to the nearest dollar.**[Input box for answer]** *Explanation for Educators:*- **Current Ratio** is calculated as Current Assets / Current Liabilities. Hoffman needs this ratio to be ≥ 1.5.- **Debt Ratio** is calculated as Total Liabilities / Total Assets. Hoffman needs this to be ≤ 0.5.- The task involves determining how much additional borrowing is possible while adhering to these financial constraints.

Working capital is the amount of money that is required to meet the day-to-day requirements of an organization. It is necessary for the working of an organization. It includes the purchase of raw materials, paying salaries, wages, rent etc. It is also called as circulating capital, liquid capital, operating capital etc. According to Shubin, '' Working capital is the amount of funds necessary to cover the cost of operating the enterprise". It is the difference in the inflow and outflow of funds in an organization. The requirements of assets and liabilities are called working capital. Current asset and current liabilities are the two components of working capital. Current assets are those assets which can be converted into cash in the normal course of activity especially with in one year. On the other hand current liabilities are those liabilities which is repayable with in with year. It can be calculated using the following formula: Working Capital = Current Assets - Current Liabilities OR Working Capital Ratio = Current assets/ Current liabilities Debt Equity Ratio is the ratio of debt to the equity of an organization. It indicates the measure of the contributions made by the creditors and the owners of the business to capital employed. It is calculated as follows: Debt Equity Ratio =DebtEquity OR Debt Equity Ratio = Short Term Debt + Long Term Debt + Other Fixed PaymentsShareholders EquityPARTICULARS AMOUNT AMOUNT A) Current Assets Cash 55000 Accounts Receivables 150000 Inventories 255000 Total Current Assets 460000 B) Current Liabilities Current Liabilities 210000 Total Current Liabilities 210000 Working Capital 250000 Working capital ratio =Current AssetsCurrent Liabilities =460000210000 =2.1Debt Equity Ratio = 210000+300000630000 =510000630000 = 0.80

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Given the balance sheet provided above, determine how much additional money Hoffman could borrow at this time to invest in inventory and accounts receivable without violating the terms of its borrowing agreement. Round your answer to the nearest dollar.

Given the balance sheet provided above, determine how much additional money Hoffman could borrow at this time to invest in inventory and accounts receivable without violating the terms of its borrowing agreement. Round your answer to the nearest dollar.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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