Lloyd Inc. has sales of $250,000, a net income of $20,000, and the following balance sheet:

Cash $42,600 Accounts payable $64,200

Receivables 88,200 Other current liabilities 23,400

Inventories 270,000 Long-term debt 111,000

Net fixed assets 199,200 Common equity 401,400

Total assets $600,000 Total liabilities and equity $600,000

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, 1.75x, without affecting sales or net income.

a. If inventories are sold and not replaced (thus reducing the current ratio to 1.75x), 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.

b. What will be the firm's new quick ratio? Round your answer to two decimal places.