Ask Question
BusinessBusiness
14 July, 22:39

The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.75, without affecting either sales or net income. Assuming that inventories are sold off and not replaced to get the current ratio to the target level, and that the funds generated are used to buy back common stock at book value, by how much would the ROE change? a. 11.26% b. 11.85% c. 13.07% d. 13.72% e. 12.45%

+1
Answers (1)
  1. 15 July, 01:58
    0
    B 11.85%

    Explanation:

    Target current ratio = Current assets/current liabilities = 2.75

    Target current assets = 2.75*70,000 = 192500

    Inventory to sell = Exiting current asset - required current asset = 364,000-192500 = 171,500

    New common equity = 280,000-171,500 = 108,500

    Old ROE = 21,000/280,000 = 7.5%

    New ROE = 21,000/108,500 = 19.35%%

    ROE change = 11.85%
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers
You Might be Interested in
Which of the following is not one of the policies and procedures that make up an internal control system? Multiple Choice Protect assets. Ensure reliable accounting. Guarantee a return to investors. Uphold company policies.
Answers (1)
M-commerce is defined as any electronic transaction or information interaction conducted using a wireless, mobile device and mobile networks that leads to the transfer of real or perceived value in exchange for information, services, or goods.
Answers (1)
In order to be hired for a position at the local hospital, a person must meet with Pamela. She interviews them and gives them paperwork to fill out before their first day.
Answers (1)
Which of the following markets has a barrier to entry? A. There are already many fast food restaurants in the City of Buffalo. B. Stan's Garbage Company runs the only trash collection service in town. C. Crystal develops a new product and patents it.
Answers (1)
In a mortgage, the amount of money borrowed is called the?
Answers (1)
New Questions in Business
Implicit transaction
Answers (1)
A firm plans to begin production of a new small appliance. The manager must decide whether to purchase the motors for the appliance from a vendor at $8 each or to produce them in-house.
Answers (2)
A stock's holding period return represents: a. the return from a stock relative to the return from a specific portfolio. b. the total return earned over a specific period through buying and selling an asset. c.
Answers (1)
Evaluate the current China/Taiwan logistics costs. Assume a current total volume of 190,000 CBM and that 89 percent is shipped direct from the supplier plants in containers.
Answers (1)
Given the pork supply function Q = 178 + 40p - 60p_h. how does the supply function, Q = 88 + 40p. change if the price of hogs increases from $1.50 to $1.90 per kg? If the price of hogs increases to $1.90 per kg, then the supply function will be Q =
Answers (1)
Home » Business » The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.75, without affecting either sales or net income.
Sign Up Forgot Password?