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In response to complaints about high prices, a grocery chain runs the following advertising campaign: "If you pay a child $1
In response to complaints about high prices, a grocery chain runs the following advertising campaign: "If you pay a child $1.50 to go buy $50 worth of groceries, then you child makes twice as much on the trip as we do." You've collected the following information from the grocery chain's financial statements:
| Sales | $710 |
| Net Income | $10.65 |
| Total assets | $390 |
| Total debt | $280 |
Required:
Evaluate the grocery chain's claim.
What is the basis for this statement?
Is this claim misleading? Why or why not?
Expert Solution
Yes, it is misleading. I cannot understand that a $1.50 is worth of $50 groceries. Why not the advertising campaign about it will be, for every $50 sale of groceries, it costs us $45. Giving an amount not related to the purpose of the advertisement of high prices will mislead the customers.
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