Lloyd Inc. has sales of $650,000, a net income of $39,000, and the following balance sheet:
Cash$131,560 Accounts payable$168,740
Receivables180,180 Other current liabilities77,220
Inventories700,700 Long-term debt270,270
Net fixed assets417,560 Common equity913,770
Total assets$1,430,000 Total liabilities and equity$1,430,000
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.
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.
%
What will be the firm's new quick ratio? Round your answer to two decimal places.
x
Answers: 3
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Lloyd Inc. has sales of $650,000, a net income of $39,000, and the following balance sheet:
Cash$13...
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