Hoffman Paper Company, a profitable distributor of stationery and office supplies, has an agreement with its banks that allows Hoffman to borrow money on a short- term basis to finance its inventories and accounts receivable. The agreement states that Hoffman must maintain a current ratio of 1.5 or higher and a debt ratio of 50 percent or lower. Given the following balance sheet, 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.
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Cash
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$ 50,000
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Current liabilities
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$ 200,000
|
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Accounts
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150,000
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Long-term debt
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300,000
|
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receivable Inventory
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250,000
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Stockholders' equity
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630,000
|
|
Fixed assets (net)
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680,000
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Total liabilities and
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|
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Total assets
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$1,130,000
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stockholders' equity
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$1,130,000
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