80.2K

Verified Solution

Link Copied!

Intro Batty Bricks Inc. has the following balance sheet and income statement Cash- Receivables Inventory Current assets Net fixed assets Total assets Amount 24,000 33,000 90,000 147,000 104,000 251,000 Accounts payable Other current liabilities Current liabilities Long-term debt Equity Total liabilities & equity Amount 35,000 19,000 54,000 120,000 77,000 251,000 Sales were $240,000 and net income was $48,000 for the year. The CFO thinks that inventories are excessive and could be reduced until the current ratio equals the industry average of 1.7, without affecting sales or net income. The funds generated by seling off inventory are used to buy back common stock at book value. Part 1 Attempt 1/10 for 10 pts. What is the new level of current assets with a current ratio of 1.7? No decimal Submit Part 2 - Attempt 1/10 for 10 pts. What should be the new level of inventory Attempt 1/10 for 10 pts. Part 3 How much inventory should be sold off? No decimals Submit Part 4 - Attempt 1/10 for 10 pts. What is the new book value of common equity after the buyback? No decimals Submit 8 Attempt 1/10 for 10 pts. Part 5 What is the new ROE after the stock buyback? Submit Attempt 1/10 for 10 pts. Part 5 What is the new ROE after the stock buyback? 2+ decimals Submit Part 6 Attempt 1/10 for 10 pts. What's the change in ROE? 2- decimals Submit Intro Batty Bricks Inc. has the following balance sheet and income statement Cash- Receivables Inventory Current assets Net fixed assets Total assets Amount 24,000 33,000 90,000 147,000 104,000 251,000 Accounts payable Other current liabilities Current liabilities Long-term debt Equity Total liabilities & equity Amount 35,000 19,000 54,000 120,000 77,000 251,000 Sales were $240,000 and net income was $48,000 for the year. The CFO thinks that inventories are excessive and could be reduced until the current ratio equals the industry average of 1.7, without affecting sales or net income. The funds generated by seling off inventory are used to buy back common stock at book value. Part 1 Attempt 1/10 for 10 pts. What is the new level of current assets with a current ratio of 1.7? No decimal Submit Part 2 - Attempt 1/10 for 10 pts. What should be the new level of inventory Attempt 1/10 for 10 pts. Part 3 How much inventory should be sold off? No decimals Submit Part 4 - Attempt 1/10 for 10 pts. What is the new book value of common equity after the buyback? No decimals Submit 8 Attempt 1/10 for 10 pts. Part 5 What is the new ROE after the stock buyback? Submit Attempt 1/10 for 10 pts. Part 5 What is the new ROE after the stock buyback? 2+ decimals Submit Part 6 Attempt 1/10 for 10 pts. What's the change in ROE? 2- decimals Submit

Answer & Explanation Solved by verified expert

See Answer