Determine how much additional money hoffman could borrow

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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.

Cash

$   50,000

Current liabilities

$  200,000

Accounts

150,000

Long-term debt

300,000

receivable Inventory

250,000

Stockholders' equity

    630,000

Fixed assets (net)

    680,000

Total liabilities and

 

Total assets

 $1,130,000

stockholders' equity

 $1,130,000

Reference no: EM13928881

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