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7. Muss Inc. has the following balance sheet and income statement data! Cash Receivables Inventories Total CA Net fixed assets Total assets Sales Net
7. Muss Inc. has the following balance sheet and income statement data! Cash Receivables Inventories Total CA Net fixed assets Total assets Sales Net income $ 14,000Accounts payable 70,000Other current liabilities 210,000 Total CL $294,000Long-term debt 126.000Common equity $420,000 Total liab. and equity $280,000 $ 21,000 $ 42,000 28.000 $ 70,000 70,000 280,000 $420,000 The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.50, without affecting either sales or net income. Assuming that excess inventories are sold off to achieve the target current ratio of 2.5, and that the funds generated are used to buy short-term investments caming a (before-tax) return of 8%, by how much would the profit margin change? Assume a tax rate of 21%.
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