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The financial statement information for the Sunflower Corporation is presented below: Income statement: Sales $200,000 Net Income $ 15.000 Balance sheet: Cash Receivables Inventories Net
The financial statement information for the Sunflower Corporation is presented below: Income statement: Sales $200,000 Net Income $ 15.000 Balance sheet: Cash Receivables Inventories Net foed assets Total assets 10,000 50,000 150,000 90.000 300,000 Accounts payable Other current liabilities Long-term debt Common equity Total liabilities and equity 30,000 20,000 50,000 200,000 300,000 The company's management team thinks that its Inventory level is excessive and can be lowered to a point where the current ratio is equal to the industry average of 2.5, without affecting the firm's Sales or Net Income. If the firm's Inventory is sold off and not replaced (thus reducing current ratio to 2.5), and if the funds generated are used to reduce common equity (by paying dividends, for example), and if no other changes occur, by how much will the ROE change? What will be the firm's new quick ratio? 4-9
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