1. Following is some standard accounting information for each of the firms shown
ID: 2531947 • Letter: 1
Question
1. Following is some standard accounting information for each of the firms shown. Can you tell which firm is the most successful? Explain.
Boeing
Good Year
Liz Claiborne
Circuit City
Sales
5601
423
622
1767
Profits
254
26.9
56.2
31.6
Return on Sales
4.5%
5.2%
9%
1.8%
Return on Equity
10.2
13.9
15
14.5
2. Middleton Steel Company is considering whether to temporarily close one of its manufacturing plants. If it does close the plant, it faces the costs of shutting down and then starting back up, the costs of criticism from the city in which the plant is located, and the costs of customer abandonment as some customers purchase products elsewhere. If it does not close the plant, it will experience substantial losses because revenues will not cover variable costs.
a. What would a net present value analysis say about the decision?
b. What other strategies might be used?
Boeing
Good Year
Liz Claiborne
Circuit City
Sales
5601
423
622
1767
Profits
254
26.9
56.2
31.6
Return on Sales
4.5%
5.2%
9%
1.8%
Return on Equity
10.2
13.9
15
14.5
Explanation / Answer
As Per policy, only one question is a allowed to answer at a time , so answering Q1:
1) The most successful firm would be one having higher Return on sales and Return on equity because higher margin on sales will result higher return to Equity shareholder.
So, in the case, the Liz Claiborne firm is having higher sales return at 9% and equity return at 15% among the four firms, so it is the most successful one among the four firms.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.