10. Tozer Inc. has the following balance sheet: Cash...
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Accounting
10. Tozer Inc. has the following balance sheet:
| Cash | $ 50,000 |
|
| Accounts payable | $ 145,000 |
| Receivables | 150,000 |
|
| Other current liabilities | 121,000 |
| Inventories | 450,000 |
|
| Long-term debt | 284,000 |
| Net fixed assets | 500,000 |
|
| Common equity | 600,000 |
| Total assets | $1,150,000 |
|
| Total liabilities & equity | $1,150,000 |
Last year the firm had $144,600 of net income on $1,500,000 of sales. However, the new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.0, without affecting either sales or net income. Assume inventories are sold off and not replaced to get the current ratio to 2.0, and the funds generated are used to buy back common stock at book value without changing anything else. What is the ROE after these changes are made? (Note: You may want to refer to the Summary of Ratios worksheet in Module 1 on the courses canvas website.)
a. 30.00%
b. 32.50%
c. 35.00%
d. 37.50%
e. 40.00%
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