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(Analyzing liquidity) When a firm enters into a loan agreement with its bank, the agreement...

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Finance

(Analyzing liquidity) When a firm enters into a loan agreement with its bank, the agreement often includes a clause(i.e., a loan covenant) that the firm must maintain a minimum current ratio. So, the firm needs to be aware of the effects of its decisions on the current ratio in order to maintain compliance with the loan contract. Consider the situation of Advanced Autoparts (AAP) in 2009. The firm had total current assets of $1 comma 913 comma 448 comma 600 and current liabilities of $ 1 comma 366 comma 749 comma 000.
a. What was the firm's current ratio at the end of 2009?
b. If the firm were to expand its investment in inventory and finance the expansion by increasing accounts payable, how much could it increase its inventory without reducing the current ratio below 1.2?
c. If the company needed to raise its current ratio to 1.5 by reducing its investment in current assets and simultaneously reducing accounts payable and short-term debt, how much would it have to reduce current assets to accomplish this goal?

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