A company has current liabilities of $2,000,000 and net working capital of $300,000. If the company has a quick ratio of 0.8, the company has inventory of
Question
A company has current liabilities of 300,000. If the company has a quick ratio of 0.8, the company has inventory of
Solution
The quick ratio is calculated as (Current Assets - Inventory) / Current Liabilities.
Given that the quick ratio is 0.8 and the current liabilities are $2,000,000, we can set up the following equation:
0.8 = (Current Assets - Inventory) / $2,000,000
Solving for Current Assets, we get:
Current Assets = 0.8 * 1,600,000 + Inventory
We also know that Net Working Capital is calculated as Current Assets - Current Liabilities.
Given that the net working capital is 2,000,000, we can set up the following equation:
2,000,000
Solving for Current Assets, we get:
Current Assets = 2,000,000 Current Assets = $2,300,000
Now, we can set the two equations for Current Assets equal to each other and solve for Inventory:
2,300,000 Inventory = 1,600,000 Inventory = $700,000
So, the company has an inventory of $700,000.
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