Reference no: EM132562532

Question a) Consider the following financial data (in millions of dollars) for Costello Laboratories over the period of 2014-2018: Year Sales Net income Total assets Common equity 2014 $3,800 $500 $3,900 $1,800 2015 4,400 650 4,400 2,100 2016 5,000 750 4,800 2,500 2017 5,400 860 4,900 2,700 2018 6,200 1,000 5,600 2,800 Using the Du Pont System, describe the changes in the return on equity from year to year.

Question b) Construct the common size balance sheet for Grisham Company for 2017: Balance Sheet (in millions) Assets Liabilities Cash $50 Current liabilities $30 Accounts receivable $30 Long-term debt $90 Inventory $80 Equity $240 Plant and equipment $200 Total liabilities and equity $360 Total assets $360

Question c) 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?