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Lloyd Inc. has sales of $500,000, a net income of $35,000, and the following balance sheet: Cash $73,600 Accounts payable $81,600 Receivables 124,800 Notes payable

Lloyd Inc. has sales of $500,000, a net income of $35,000, and the following balance sheet:

Cash $73,600 Accounts payable $81,600
Receivables 124,800 Notes payable to bank 48,800
Inventories 312,000 Total current liabilities $130,400
Total current assets $510,400 Long-term debt 154,400
Net fixed assets 289,600 Common equity 515,200
Total assets $800,000 Total liabilities and equity $800,000

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 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.

%

What will be the firm's new quick ratio? Do not round intermediate calculations. Round your answer to two decimal places.

x

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