Hocus Pocus Company wants to increase sales by adding a new product line. The company is...
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Hocus Pocus Company wants to increase sales by adding a new product line. The company is considering three different projects. However, its capital budget is limited to $1,500,000. In addition, the company requires a rate of return of 10%. The information concerning the three product lines is given below. Net Initial Investment Budgeted Income Statement for the next five years: Sales Cost of Goods Sold Broomsticks $1,170,000 298 $500,000 80,000 420,000 100,000 ? Gross Margin Marketing and Administrative Expenses Net Income* *Assume all amounts stated on the budgeted income statement are cash items. b) Which project should Hocus Pocus invest in and why? Magic Wands $983,000 $450,000 50,000 400,000 130,000 ? Required a) Determine the net present value for each project assuming all cash flows cease after five years. Crystal Balls $2,210,000 c) If Hocus Pocus had a capital budget limit of $2,300,000, how should they invest it? $650,000 32,000 618,000 22,000 ? Hocus Pocus Company wants to increase sales by adding a new product line. The company is considering three different projects. However, its capital budget is limited to $1,500,000. In addition, the company requires a rate of return of 10%. The information concerning the three product lines is given below. Net Initial Investment Budgeted Income Statement for the next five years: Sales Cost of Goods Sold Broomsticks $1,170,000 298 $500,000 80,000 420,000 100,000 ? Gross Margin Marketing and Administrative Expenses Net Income* *Assume all amounts stated on the budgeted income statement are cash items. b) Which project should Hocus Pocus invest in and why? Magic Wands $983,000 $450,000 50,000 400,000 130,000 ? Required a) Determine the net present value for each project assuming all cash flows cease after five years. Crystal Balls $2,210,000 c) If Hocus Pocus had a capital budget limit of $2,300,000, how should they invest it? $650,000 32,000 618,000 22,000 ?
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For Broomsticks Cashflow calculation is given in the table below Sale 500000 Cost of Goods Sold 8000... View the full answer
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Posted Date:
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