10. Tozer Inc. has the following balance sheet: Cash...
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Accounting
10. Tozer Inc. has the following balance sheet:
Cash
$ 50,000
Accounts payable
$ 145,000
Receivables
150,000
Other current liabilities
121,000
Inventories
450,000
Long-term debt
284,000
Net fixed assets
500,000
Common equity
600,000
Total assets
$1,150,000
Total liabilities & equity
$1,150,000
Last year the firm had $144,600 of net income on $1,500,000 of sales. However, the new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio toequal the industry average, 2.0, without affecting either sales or net income. Assume inventories are sold off and not replaced to get the current ratio to 2.0, and the funds generated are used to buy back common stock at book value without changing anything else. What is the ROE after these changes are made? (Note: You may want to refer to the Summary of Ratios worksheet in Module 1 on the courses canvas website.)
a. 30.00%
b. 32.50%
c. 35.00%
d. 37.50%
e. 40.00%
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