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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
Problem 1PS
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This is an example prioblem. I need help understanding the math that is being done?

ale (Evaluating liquidity) Aylward Inc. currently has $2,185,000 in current assets and $876,000 in current liabilities. The a company's managers want to increase the firm's inventory, which will be financed by a short-term note with the th bank. What level of inventories can the firm carry without its current ratio falling below 2.2? Aylward's target current ratio is 2.2. Let X represent the cost of the additional inventory financed with the short-term note. We solve for X as follows: $2,185,000 + X 2.2 = $876,000 + X 2.2x ($876,000 +X) = $2,185,000 +X $1,927,200 + 2.2X = $2,185,000 +X X x(2.2 - 1) = $2,185,000 – $1,927,200 $2,185,000 – $1,927,200 X= - = $214,833 2.2 - 1 ↑ ↑
Transcribed Image Text:ale (Evaluating liquidity) Aylward Inc. currently has $2,185,000 in current assets and $876,000 in current liabilities. The a company's managers want to increase the firm's inventory, which will be financed by a short-term note with the th bank. What level of inventories can the firm carry without its current ratio falling below 2.2? Aylward's target current ratio is 2.2. Let X represent the cost of the additional inventory financed with the short-term note. We solve for X as follows: $2,185,000 + X 2.2 = $876,000 + X 2.2x ($876,000 +X) = $2,185,000 +X $1,927,200 + 2.2X = $2,185,000 +X X x(2.2 - 1) = $2,185,000 – $1,927,200 $2,185,000 – $1,927,200 X= - = $214,833 2.2 - 1 ↑ ↑
IL (Evaluating liquidity) Aylward Inc. currently has $2,185,000 in current assets and $876,000 in current liabilities. The aç company's managers want to increase the firm's inventory, which will be financed by a short-term note with the th bank. What level of inventories can the firm carry without its current ratio falling below 2.2? « STEP 1: FORMULATE A SOLUTION STRATEGY Current ratio is defined as: current assets Current ratio current liabilities
Transcribed Image Text:IL (Evaluating liquidity) Aylward Inc. currently has $2,185,000 in current assets and $876,000 in current liabilities. The aç company's managers want to increase the firm's inventory, which will be financed by a short-term note with the th bank. What level of inventories can the firm carry without its current ratio falling below 2.2? « STEP 1: FORMULATE A SOLUTION STRATEGY Current ratio is defined as: current assets Current ratio current liabilities
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