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RETURN ON EQUITY AND QUICK RATIO Lloyd Inc. has sales of $200,000, a net income of $15,000, and the following balance sheet: 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, 25×, without affecting sales or net income. If inventories are sold and not replaced (thus reducing the current ratio to 25×); 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? What will be the firm’s new quick ratio?

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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250
BuyFind

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250

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Chapter
Section
Chapter 4, Problem 15P
Textbook Problem

RETURN ON EQUITY AND QUICK RATIO Lloyd Inc. has sales of $200,000, a net income of $15,000, and the following balance sheet:

Chapter 4, Problem 15P, RETURN ON EQUITY AND QUICK RATIO Lloyd Inc. has sales of 200,000, a net income of 15,000, and the

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, 25×, without affecting sales or net income. If inventories are sold and not replaced (thus reducing the current ratio to 25×); 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? What will be the firm’s new quick ratio?

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Chapter 4 Solutions

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