RETURN ON EQUITY AND QUICK RATIO

Lloyd Inc. has sales of $300,000, a net income of $24,000, and the following balance sheet: Cash $78,000 Accounts payable $71,760 Receivables 101,400 Notes payable to bank 46,800 Inventories 374,400 Total current liabilities $118,560 Total current assets $553,800 Long-term debt 113,100 Net fixed assets 226,200 Common equity 548,340 Total assets $780,000 Total liabilities and equity $780,000 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, 2.25x, without affecting sales or net income.

1. If inventories are sold and not replaced (thus reducing the current ratio to 2.25x); 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.

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