Question

# Lloyd Inc. has sales of \$200,000, a net income of \$18,000, and the following balance sheet:...

Lloyd Inc. has sales of \$200,000, a net income of \$18,000, and the following balance sheet:

 Cash \$ 59,940 Accounts payable \$ 50,220 Receivables 65,340 Notes payable to bank 21,600 Inventories 318,600 Total current liabilities \$ 71,820 Total current assets \$ 443,880 Long-term debt 82,620 Net fixed assets 96,120 Common equity 385,560 Total assets \$ 540,000 Total liabilities and equity \$ 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×, without affecting sales or net income. If inventories are sold and not replaced (thus reducing the current ratio to 2×), 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.

ROE will increase/decrease by _______ percentage points.

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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