Lloyd Inc has sales of $200,000, net income of $15,000, and the following balance sheet: Cash 10,000
Question:
Lloyd Inc has sales of $200,000, net income of $15,000, and the following balance sheet: Cash
10,000
Accounts Receivable 50,000
Inventories 150,000
Net Fixed Assets 90,000
Total Assets = 300,000
Account Payable 30,000
Other Current Liabilities 20,000
Long Term Debt zo 50,000
Ordinary Capital 200,000
Total Liabilities and Equity = 300,000
The new owner believes that inventories are excessive and can be reduced to the point where the current rate equals the industry average, 2.5x, without affecting sales or net income. If inventories are sold and not replaced (thus reducing the current ratio to 2.5), if the funds generated are used to reduce common equity (stock can be repurchased at book value), and if no other changes occur, what How much will the ROE increase? change? What will be the firm's new quick ratio?
Entrepreneurial Finance
ISBN: 978-0538478151
4th edition
Authors: J . chris leach, Ronald w. melicher