Answer to Question #28949 in Management for alicia

Question

The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the
current ratio to equal the industry average, 2.70, 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. 4.28%
b. 4.50%
c. 4.73%
d. 4.96%
e. 5.21%