Business, 30.08.2020 14:01 daemonacoster
Lloyd Inc. had sales of $200,000, a net income of //415,000, and the following balance sheet:
Cash $10,000 Accounts Payable $30,000
Receivables 50,000 Notes Payable To Bank 20,000
Inventories 150,000 Total Current Liabilities $50,000
Total Current Assets $210,000Long-Term Debt 50,000
Net Fixed Assets 90,000Common Equity 200,000
Total Assets $300,000Total Liabilities And Equity$300,000
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, 2.5x, without affecting sales or net income. If inventories are sold and not replaced (thus reducing the current ratio to 2.5x); 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?
Answers: 1
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Lloyd Inc. had sales of $200,000, a net income of //415,000, and the following balance sheet:
Cash...
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