1. Jordan Inc has the following balance sheet:

Cash $ 14,000 Accounts payable $ 42,000

Receivables 70,000 Other current liab. 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

The new CFO thinks that inventories are excessive, so he sells some of the inventories to reduce the current ratio to 2.75, the industry average. The inventory sales proceeds are used to buy back common stock at book value. The net income is $21,000 and is not affected by this reduction in inventories. How much will be the ROE?

1. 7.5%
2. 13.72%
3. 12.45%
4. 13.07%
5. 19.35%