Return on Equity and Quick Ratio

Lloyd Inc. has sales of $250,000, a net income of $27,500, and the following balance sheet:

Cash	$79,100		Accounts payable	$78,400
Receivables	84,000		Other current liabilities	32,200
Inventories	287,000		Long-term debt	123,200
Net fixed assets	249,900		Common equity	466,200
Total assets	$700,000		Total liabilities and equity	$700,000

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? Round your answer to two decimal places. %

What will be the firm's new quick ratio? Round your answer to two decimal places. x

DSO and Accounts Receivable

Harrelson Inc. currently has $950,000 in accounts receivable, and its days sales outstanding (DSO) is 72 days. It wants to reduce its DSO to 25 days by pressuring more of its customers to pay their bills on time. If this policy is adopted, the company's average sales will fall by 20%. What will be the level of accounts receivable following the change? Assume a 365-day year. Round your answer to the nearest cent.

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