Return on Equity and Quick Ratio

Lloyd Inc. has sales of $250,000, a net income of $25,000, and the following balance sheet:

Cash	$69,750	Accounts payable	$79,500
Receivables	112,500	Other current liabilities	45,000
Inventories	435,000	Long-term debt	94,500
Net fixed assets	132,750	Common equity	531,000
Total assets	$750,000	Total liabilities and equity	$750,000

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, 2.5x, without affecting sales or net income.

1. If inventories are sold and not replaced (thus reducing the current ratio to 2.5x), 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. %
2. What will be the firm's new quick ratio? Round your answer to two decimal places. x