By how much would the roe change

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Reference no: EM133179780

Question - Jordan Inc has the following balance sheet and income statement data:

Cash

$14,000

Accounts payable

$42,000

Receivables

70,000

Other current liabilities

28,000

Inventories

280,000

Total CL

$70,000

Total CA

$364,000

Long-term debt

140,000

Net fixed assets

126,000

Common equity

280,000

Total assets

$490,000

Total liab. and equity

$490,000

Sales

$280,000

 


Net income

21,000

 


The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.25, without affecting either sales or net income. Assuming that inventories are sold off and not replaced to get the current ratio to the target level, and that the funds generated are used to buy back common stock at book value, by how much would the ROE change? Do not round your intermediate calculations.

Reference no: EM133179780

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