Reference no: EM131185439
Return on Equity and Quick Ratio
Lloyd Inc. has sales of $450,000, a net income of $22,500, and the following balance sheet: Cash $78,300 Accounts payable $120,060 Receivables 206,190 Other current liabilities 103,095 Inventories 626,400 Long-term debt 174,870 Net fixed assets 394,110 Common equity 906,975 Total assets $1,305,000 Total liabilities and equity $1,305,000 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, 2x, without affecting sales or net income.
If inventories are sold and not replaced (thus reducing the current ratio to 2x), 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.
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: Lloyd Inc. has sales of $450,000, a net income of $22,500, and the following balance sheet: Cash $78,300 Accounts payable $120,060 Receivables 206,190 Other current liabilities 103,095 Inventories 626,400 Long-term debt 174,870 Net fixed assets 394,1..
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