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RETURN ON EQUITY AND QUICK RATIO Lloyd Inc. has sales of $150,000, a net income of $15,000, and the following balance sheet: Cash $18,270 Accounts
RETURN ON EQUITY AND QUICK RATIO Lloyd Inc. has sales of $150,000, a net income of $15,000, and the following balance sheet: Cash $18,270 Accounts payable $25,830 Receivables 41,580 Notes payable to bank 10,080 Inventories 138,600 Total current liabilities $35,910 Total current assets $198,450 Long-term debt 55,440 Net fixed assets 116,550 Common equity 223,650 Total assets $315,000 Total liabilities and $315,000 equity 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. a. 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. % b. What will be the firm's new quick ratio? Do not round intermediate calculations. Round your answer to two decimal places
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