# Baker Corp. Is Required By A Debt Agreement To Maintain A Current Ratio Of At Least 2.5

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It is given that the baker`s current ratio is now 3 and their total fortune is \$15 million. We can calculate short-term commitments as follows; We`re going to have this Baker`s body. In a debt contract, it is required to maintain a current ratio of at least 2.5. Suppose the additional amount of outstanding is […]

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It is given that the baker`s current ratio is now 3 and their total fortune is \$15 million. We can calculate short-term commitments as follows; We`re going to have this Baker`s body. In a debt contract, it is required to maintain a current ratio of at least 2.5. Suppose the additional amount of outstanding is X, and then to find out how much you can extend short-term debt and stocks in the current short-term asset ratio and short-term liabilities formula, you have to add an amount that is so high that the result is 2.5. First, the amount of short-term debt must be known: calculating the amount of the additional stock that the baker can buy without breaching his debt contract; The maximum that should increase debt and short-term inventories is \$1,666,667. Current ratio – short-term assets / short-term liabilities Short-term liabilities – Short-term assets / Current report – \$15 million /3 – \$5 million. Now solve this equation for X, we get X 1.66667 ..

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