Lloyd Inc. has sales of $700,000, a net income of $84,000, and the following balance sheet: Cash $ 119,000 Accounts payable $ 189,000 Receivables 343,000 Notes payable to bank 105,000 Inventories 805,000 Total current liabilities $ 294,000 Total current assets $ 1,267,000 Long-term debt 259,000 Net fixed assets 483,000 Common equity 1,197,000 Total assets $ 1,750,000 Total liabilities and equity $ 1,750,000 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, 2.25×, without affecting sales or net income. If inventories are sold and not replaced (thus reducing the current ratio to 2.25×), 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? Do not round intermediate calculations. Round your answer to two decimal places. ROE will by percentage points. What will be the firm's new quick ratio? Do not round intermediate calculations. Round your answer to two decimal places.

Answer rating: 100% (QA)

First lets calculate the current ratio Current ratio Total current assets Total current liabilities ... View the full answer