4.1 (Ratio analysis) Brashear Inc. currently has $2145, 000 in current assets and $858,000 in current liabilities. The company’s manager wants to increase the firm’s inventory, which will be finance by a short term- note with the bank. What level of inventories can the firm carry without its current ratio falling below

Since the inventory will be financed by short term note with the bank, therefore the level of inventories can the firm carries without falling below 2.0 is

Current ratio =

Current Asset

Current liabilities

X = increase in inventory

2 = 2,145,000 + X

858,000 + X

2(858,000 + X) = 2,145,000 + X

1,716,000 + 2X= 2,145,000 + X

2X- X= 2145,000 - 1,716,000

X = 429,000

Thus, the company’s managers are able to increase the level of inventory at the level of 429,000 which is without its current ratio falling below 2.0

P/S: the answer has not been checked by an expert