PLP Corporation began operations on January 1, 2012. The initial investment by the owners was $100,000. The following information was extracted from the company€™s records.

a. Compute the return on equity for each year. Has the company been effective at managing the capital provided by the equity owners?

b. Does the information about inventory and the cost of goods sold indicate any reason for the trend in return on equity? Support your answer with any relevant ratios.

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Net December 31 Shareholders' Equity $100,000 290,000 315,000 510,000 December 31 2012 2013 2014 2015 Income $510,000 490,000 515,000 505,000 $200,000 255,000 320,000 365,000 Cost of Goods Sold $1,200,000 1,350,000 1,395,000 1,400,000