Return on Equity and Quick Ratio Lloyd Inc. has sales of $550,000, a net income of $33,000, and the following balance sheet: Cash $174,020 Accounts payable $144,760 Receivables 304,920 Other current liabilities 70,840 Inventories 800,800 Long-term debt 291,060 Net fixed assets 260,260 Common equity 1,033,340 Total assets $1,540,000 Total liabilities and equity $1,540,000
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.
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? Round your answer to two decimal places.
What will be the firm's new quick ratio? Round your answer to two decimal places.