Muscarella Inc. has the following balance sheet and income statement data:

Cash$ 14,000Accounts payable$ 42,000Receivables70,000Other current liabilities28,000Inventories210,000Total CL$ 70,000Total CA$294,000Long-term debt70,000Net fixed assets126,000Common equity280,000Total assets$420,000Total liab. and equity$420,000Sales$280,000Net income$ 21,000

The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 3.20, without affecting either sales or net income. Assuming that inventories are sold off and not replaced to get the current ratio to the target level, and that the funds generated are used to buy back common stock at book value, by how much would the ROE change?

Select the correct answer.

a. 2.50%b. 3.46%c. 2.82%d. 3.14%e. 3.78%