Question
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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