XYZ's balance sheet and income statement are given below: Balance Sheet: Cash $ 50 Accounts payable $ 100 A/R 150 Notes payable 0 Inventories 300 Long-term debt (10%) 700 Fixed assets 500 Common equity (20 shares) 200 Total assets $1,000 Total liabilities and equity $1,000 Income Statement: Sales $1,000 Cost of goods sold 855 EBIT $ 145 Interest 70 EBT $ 75 Taxes (33.333%) 25 Net income $ 50 The industry average inventory turnover is 5, the interest rate on the firm's long-term debt is 10%, 20 shares are outstanding, and the stock's P/E is 8.0.

If XYZ increased its inventory turnover to the industry average, if it used freed-up funds to buy back common stock at the current market price and thus to reduce common equity, and if sales, the cost of goods sold, and the P/E ratio remained constant, by what dollar amount would its stock price increase?

$ 3.33

$ 6.67

$ 8.75

$10.00

$12.50

Answer rating: 100% (QA)

XYZ All Amounts in Inventory Turnover Ratio Cost of Goods Sold Inventory ... View the full answer