The new owner thinks that inventories are excessive and can

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Reference no: EM13619771

Lloyd Inc. has sales of $650,000, a net income of $39,000, and the following balance sheet:

Cash	$131,560	Accounts payable	$168,740
Receivables	180,180	Other current liabilities	77,220
Inventories	700,700	Long-term debt	270,270
Net fixed assets	417,560	Common equity	913,770
Total assets	$1,430,000	Total liabilities and equity	$1,430,000

The new owner thinks that inventories are excessive and can be lowered to the point where the current ratio is equal to the industry average, 2.5x, without affecting sales or net income.

If inventories are sold and not replaced (thus reducing the current ratio to 2.5x), if the funds generated are used to reduce common equity (stock can be repurchased at book value), and if no other changes occur, by how much will the ROE change? Round your answer to two decimal places.
What will be the firm's new quick ratio? Round your answer to two decimal places.

Reference no: EM13619771

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