Jefferson wants to improve its inventory turnover to the industry average of 10.0´. The change is not expected to have an effect on sales.

JEFFERSON.

Current ratio and inventory turnover                          Answer: b

Jefferson Co. has $2 million in total assets and $3 million in sales. The company has the following balance sheet:

 

Cash                                $  100,000              Accounts payable $  200,000

Accounts receivable         200,000          Accruals                  100,000

Inventories                           500,000          Notes payable          200,000

Net fixed assets               1,200,000          Long-term debt        700,000

Common equity        800,000

Total liabilities

Total assets                    $2,000,000            and equity         $2,000,000

 

 

Jefferson wants to improve its inventory turnover to the industry average of 10.0´.  The change is not expected to have an effect on sales. 

If successful, the company would use the freed-up cash from the reduction in inventories and use half of it to reduce notes payable and the other half to reduce common equity.  If successful, what will be Jefferson’s current ratio?

 

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