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Firm new quick ratio-happy homes limited

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Happy Homes Limited has sales of $200,000 and a net income of $15,000. The attached document shows the balance sheet of the company. The new owner of the company thinks that inventory is excessive and can be lowered to the point where current ratio is equal to the industry average of 2.30 without affecting sales or net income. If inventories are sold and not replaced (thus reducing the current ratio to 2.50), and if the funds generated from this sale are used to reduce common equity (assume stocks can be repurchased at book value), by how much will the return on equity change? What will be the firm's new quick ratio?

Reference no: EM132657544

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