Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Lloyd Inc. has sales of $400,000, a net income of $40,000, and the following balance sheet: Cash $ 140,400 Accounts payable $ 128,400 Receivables 236,400
Lloyd Inc. has sales of $400,000, a net income of $40,000, and the following balance sheet: Cash $ 140,400 Accounts payable $ 128,400 Receivables 236,400 Notes payable to bank 61,200 Inventories 564,000 Total current liabilities $ 189,600 Total current assets 940,800 Long-term debt 204,000 Net fixed assets 259,200 Common equity 806,400 Total assets $1,200,000 Total liabilities and equity $1,200,000 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, 2.5x, 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? Do not round intermediate calculations. Round your answer to two decimal places. ROE will -Select- by percentage points. What will be the firm's new quick ratio? Do not round intermediate calculations. Round your answer to two decimal places
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started