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$ 10,000 $ 30,000 20,000 $ 50,000 Cash Accounts payable Notes payable to bank Receivables 50,000 Inventories 150,000 $210,000 90,000 $300,000 Total current liabilities Long-term debt Common equity Total liabilities and equity Total current assets 50,000 200,000 $300,000 Net fixed assets Total assets

$ 10,000 $ 30,000 20,000 $ 50,000 Cash Accounts payable Notes payable to bank Receivables 50,000 Inventories 150,000 $210,000 90,000 $300,000 Total current liabilities Long-term debt Common equity Total liabilities and equity Total current assets 50,000 200,000 $300,000 Net fixed assets Total assets

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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:

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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?

$ 10,000 $ 30,000 20,000 $ 50,000 Cash Accounts payable Notes payable to bank Receivables 50,000 Inventories 150,000 $210,000 90,000 $300,000 Total current liabilities Long-term debt Common equity Total liabilities and equity Total current assets 50,000 200,000 $300,000 Net fixed assets Total assets
Transcribed Image Text:$ 10,000 $ 30,000 20,000 $ 50,000 Cash Accounts payable Notes payable to bank Receivables 50,000 Inventories 150,000 $210,000 90,000 $300,000 Total current liabilities Long-term debt Common equity Total liabilities and equity Total current assets 50,000 200,000 $300,000 Net fixed assets Total assets
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