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?