Construct income statement for each company for strong, average, and weak economies using the following format:

The cost of goods sold functions for the three firms are as follows:

Because of working capital differences, sales for the three firms under different economic conditions are expected to vary as follows:
Aggressive Moderate Conservative
Strong economy........$1,800,000..............$1,875,000..........$1,950,000
Average economy.......1,350,000................1,500,000............1,725,000
Weak economy..........1,050,000...............1,200,000............1,575,000
Required:
Compare the returns on equity for the companies and find which company is best in the strong, average, and weak?
What considerations for the management of working capital are indicated by this problem?

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Conservative Aggressive S225,000 Moderate Current Assets $300,000 $300,000 $600,000 S150,000 $450,000 300,000 $750,000 $750,000 300,000 $525,000 Current liabilities (cost=12%) $300,000 Fixed Assets Total Assets Long-term debt (cost=10%) 150,000 300,000 S300,000 S375,000 Total Debt 300,000 225,000 Total Liabilities and equity 525,000 Equity 300,000 $600,000 375,000 $750,000 Current Ratio 0.75 2.0 6.0 Cost of Goods Sold = Fixed Costs + Variable Costs Aggressive: Moderate: Cost of goods sold = $300,000 + 0.70 (Sales) Cost of goods sold = $405,000 + 0.65 (Sales) Cost of goods sold = $577,500 + 0.60 (Sales) Conservative: