Cash	$ 10,000	Accounts payable	$ 30,000
Receivables	50,000	Notes payable	20,000
Inventories	150,000	Total current liabilities	$ 50,000
Total current assets	$ 210,000	Long-term debt	50,000
Net Fixed assets	90,000	Common equity	200,000
Total assets	$ 300,000	Total liabilities and equity	$ 300,000

Net Sales	200,000
Net income	15,000

Lloyd Inc. Has sales of $200,000, a net income of $15,000 (balance sheet posted above). 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? What will be the firm's new quick ratio?

How much will the ROE change?

What will be the firms new quick ratio?