Reference no: EM132559431
Consider the following financial data (in millions of dollars) for Costello Laboratories over the period of 2014-2018:
Year Sales
2014 $3,800
2015 4,400
2016 5,000
2017 5,400
2018 6,200
Net income
$500 650 750 860 1,000
Total assets
$3,900 4,400 4,800 4,900 5,600
Common equity $1,800 2,100 2,500 2,700 2,800
Question 1: Using the Du Pont System, describe the changes in the return on equity from year to year. (10 marks)
Question 2: Construct the common size balance sheet for Grisham Company for 2017: Balance Sheet (in millions)
Assets
Cash $50
Accounts receivable $30
Inventory $80
Plant and equipment $200
Total assets $360
Liabilities
Current liabilities $30
Long-term debt $90
Equity $240
Total liabilities and equity $360
Question 3: Redan Manufacturing uses 2,500 switch assemblies per week and then reorders another 2,500. If the relevant carrying cost per switch assembly is $10, and the fixed order cost is $2,400, is Redan's inventory policy optimal? Why or why not?