7. Problem 4.15 (Return on Equity and Quick Ratio) eBook Problem Walk-Through Lloyd Inc. has...
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7. Problem 4.15 (Return on Equity and Quick Ratio) eBook Problem Walk-Through Lloyd Inc. has sales of $100,000, a net income of $9,000, and the following balance sheet: Cash $16,820 Accounts payable $25,810 Receivables 54,810 Notes payable to bank 16,530 Inventories 145,000 Total current liabilities $42,340 Total current assets $216,630 Long-term debt 50,170 Net fixed assets 73,370 Common equity 197,490 Total assets $290,000 Total liabilities and equity $290,000 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. 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. % What will be the firm's new quick ratio? Do not round intermediate calculations. Round your answer to two decimal places.
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