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The King Carpet Company has $3,010,000 in cash and a total of $12,110,000 in current assets. The firm's current liabilities equal $5,630,000 such that the firm's current ratio equals 2.2 The company's managers want to reduce the firm's cash holdings down to $1,180,000 by paying $560,000 in cash to expand the firm's truck fleet and using $1,270,000 in cash to retire a short-term note. If they carry this plan through, what will happen to the firm's current ratio? The new current ratio is ? (round 2 decimals)

The King Carpet Company has $3,010,000 in cash and a total of $12,110,000 in current assets. The firm's current liabilities equal $5,630,000 such that the firm's current ratio equals 2.2 The company's managers want to reduce the firm's cash holdings down to $1,180,000 by paying $560,000 in cash to expand the firm's truck fleet and using $1,270,000 in cash to retire a short-term note. If they carry this plan through, what will happen to the firm's current ratio? The new current ratio is ? (round 2 decimals)

Essentials Of Investments
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
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The King Carpet Company has $3,010,000 in cash and a total of $12,110,000 in current assets. The firm's current liabilities equal $5,630,000 such that the firm's current ratio equals 2.2 The company's managers want to reduce the firm's cash holdings down to $1,180,000 by paying $560,000 in cash to expand the firm's truck fleet and using $1,270,000 in cash to retire a short-term note. If they carry this plan through, what will happen to the firm's current ratio?
The new current ratio is ? (round 2 decimals)
 
 
 
 
Expert Solution
Step 1: Calculate current assets and liabilities

Current assets = $12,110,000

Current liabilities = $5,630,000

Current ratio = 2.2 


The company's managers want to reduce the firm's cash holdings down to $1,180,000 by paying $560,000 in cash to expand the firm's truck fleet and using $1,270,000 in cash to retire a short-term note. 

The current assets will be 

table row cell C u r r e n t space a s s e t s end cell equals cell $ 12 comma 110 comma 000 minus $ 560 comma 000 minus $ 1 comma 270 comma 000 end cell row blank equals cell $ 10 comma 280 comma 000 end cell end table

The current liabilities will be 

table row cell C u r r e n t space l i a b i l i t i e s end cell equals cell $ 5 comma 630 comma 000 minus $ 1 comma 270 comma 000 end cell row blank equals cell $ 4 comma 360 comma 000 end cell end table


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