What is the roe after these changes are made

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Nachman Inc. has the following balance sheet:

Cash $18,750

Receivables $ 106,250

Inventories $ 325,000

Net Fixed Assets $ 300,000

Total Assets $ 750,000

Accounts Payable $ 62,500

Other Current Liabilities $ 56,250

Long-Term Debt $ 193,750

Common Equity $ 437,500

Total Liabilities & Equity $750,000

Last year the firm had $40,000 of net income on $600,000 of sales. However, the new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.5, without affecting either sales or net income. Assume inventories are sold off and not replaced to get the current ratio to 2.5, and the funds generated are used to buy back common stock at book value without changing anything else. What is the ROE after these changes are made?

a. 9.14%

b. 11.60%

c. 14.07%

d. 15.33%

e. 16.25%

Reference no: EM131989524

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