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Lloyd Inc. has sales of $300,000, a net income of $15,000, and the following balance sheet: Cash $79,170 Accounts payable $87,870 Receivables 126,150 Notes payable
Lloyd Inc. has sales of $300,000, a net income of $15,000, and the following balance sheet: Cash $79,170 Accounts payable $87,870 Receivables 126,150 Notes payable to bank 50,460 Inventories 391,500 Total current liabilities $138,330 Total current assets $596,820 Long-term debt 114,840 Net fixed assets 273,180 Common equity 616,830 Total assets $870,000 Total liabilities and equity $870,000 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, 2.25x, without affecting sales or net income. If inventories are sold and not replaced (thus reducing the current ratio to 2.25x); if the funds generated are used to reduce common equity (stock can be repurchased
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