Lloyd Inc. has sales of $400,000, a net income of $44,000, and the following balance sheet: Cash $122,080 Accounts payable $126,560 Receivables 183,680 Notes payable to bank 42,560 Inventories 403,200 Total current liabilities $169,120 Total current assets $708,960 Long-term debt 197,120 Net fixed assets 411,040 Common equity 753,760 Total assets $1,120,000 Total liabilities and equity $1,120,000 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, 2x, without affecting sales or net income.
a. If inventories are sold and not replaced (thus reducing the current ratio to 2x); 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. %
b. What will be the firm's new quick ratio? Do not round intermediate calculations. Round your answer to two decimal places.