Jordan Inc has the following balance sheet and income statement data: Cash$14,000 Accounts payable$42,000 Receivables70,000 Other current liabilities28,000 Inventories280,000 Total CL$70,000 Total CA$364,000 Long-term debt140,000 Net fixed assets126,000 Common equity280,000 Total assets$490,000 Total liab. and equity$490,000 Sales$280,000 Net income21,000 ? The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.15, 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? Do
not round your intermediate calculations.
A. 29.38%
B. 19.50%
C. 29.86%
D. 25.04%
E. 24.08%
Answer: E
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