1. Lloyd Inc. has sales of $200,000, a net income of $18,000, and the following balance sheet:

Cash	$	26,240		Accounts payable	$	27,200
Receivables		49,600		Notes payable to bank		18,240
Inventories		128,000		Total current liabilities	$	45,440
Total current assets	$	203,840		Long-term debt		49,920
Net fixed assets		116,160		Common equity		224,640
Total assets	$	320,000		Total liabilities and equity	$	320,000

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, 1.75, without affecting sales or net income. If inventories are sold and not replaced (thus reducing the current ratio to 1.75), 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? Do not round intermediate calculations. Round your answer to two decimal places.

ROE will -(increase/decrease) by how many percentage points.

What will be the firm's new quick ratio? Do not round intermediate calculations. Round your answer to two decimal places.

2. Broward Manufacturing recently reported the following information:

Net income	$738,000
ROA	10%
Interest expense	$280,440
Accounts payable and accruals	$1,050,000

Broward's tax rate is 25%. Broward finances with only debt and common equity, so it has no preferred stock. 40% of its total invested capital is debt, and 60% of its total invested capital is common equity. Calculate its basic earning power (BEP), its return on equity (ROE), and its return on invested capital (ROIC). Do not round intermediate calculations. Round your answers to two decimal places.

BEP: %

ROE: %

ROIC: %