GreenChapeau, Inc. is planning to increase its short-term loans (i.e., increase notes payable) to pay for an increase in the firm’s basic inventory level (i.e., increase inventory). GreenChapeau believes that this event will have no affect on either sales or costs, and therefore no affect on net income.

All else constant, this new policy should cause the firm’s current ratio (assuming a current ratio of 1.5) to:

Increase

Decrease

No Change

Not enough information is provided to answer this question.

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