Problem:
The Nelson Company has $1,417,500 in current assets and $525,000 in current liabilities. Its initial inventory level is $367,500, and it will raise funds as additional notes payable and use them to increase inventory.
Question 1: How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 1.9? Please provide step by step solution and show all work.
Question 2: What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Please provide step by step solution and show all work.