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
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
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