Lloyd Inc. has sales of $400,000, a net income of $48,000, and the following balance sheet:
Cash $ 108,160 Accounts payable $ 95,680
Receivables 193,440 Notes payable to bank 44,720
Inventories 488,800 Total current liabilities $ 140,400
Total current assets $ 790,400 Long-term debt 128,960
Net fixed assets 249,600 Common equity 770,640
Total assets $ 1,040,000 Total liabilities and equity $ 1,040,000
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, 2.5×, without affecting sales or net income. If inventories are sold and not replaced (thus reducing the current ratio to 2.5×), 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 -Select one increase/decrease 1 by ________percentage points.
What will be the firm's new quick ratio? Do not round intermediate calculations. Round your answer to two decimal places