Problem 4-15 RETURN ON EQUITY AND QUICK RATIO

Lloyd Inc. has sales of $150,000, a net income of $16,500, and the following balance sheet:

Cash	$38,520		Accounts payable	$39,240
Receivables	43,920		Notes payable to bank	20,880
Inventories	144,000		Total current liabilities	$60,120
Total current assets	$226,440		Long-term debt	69,480
Net fixed assets	133,560		Common equity	230,400
Total assets	$360,000		Total liabilities and equity	$360,000

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, 2.5x, without affecting sales or net income.

A.) If inventories are sold and not replaced (thus reducing the current ratio to 2.5x); 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. ___ %

B.)What will be the firm's new quick ratio? Do not round intermediate calculations. Round your answer to two decimal places.

___ x