Muscarella Inc. has the following balance sheet and income ...

[desireelg_7]

Question 1

Lindley Corp.’s stock price at the end of last year was $48.71, and its book value per share was $40.50. What was its market/book ratio?

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1.56

◦

1.40

◦

1.31

◦

1.20

Question 2

Muscarella Inc. has the following balance sheet and income statement data:

Cash	$ 15,000	​	Accounts payable	$ 48,000
Receivables	80,000	​	Other current liabilities	32,000
Inventories	230,000	​	Total CL	80,000
Total CA	325,000	​	Long-term debt	90,000
Net fixed assets	155,000	​	Common equity	310,000
Total assets	$480,000	​	Total liab. and equity	$480,000
Sales	$310,000	​	​	​
Net income	$26,000	​	​	​
​	​	​	​	​	​

The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.8, 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 shares at book value, by how much would the ROE change?

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3.51%

◦

3.80%

◦

4.05%

◦

4.29%

[kyledifference]

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[desireelg_7]

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[sultansheikh]

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