AME ENGAGE CT-1 LO 7 Critical Thinking Gordon Sparks Ltd. sells ergonomic chairs. The company implemented a new bonus structure for all of their managers. If net income increased from the previous year, managers would be rewarded with 0.5% of the increase in net income. In January of last year, Mingle Nicholson was hired as the manager of the marketing department. As the marketing manager, he was responsible for seeking external opportunities, managing budgets and understanding the current and potential customers. Every three or four days, Mingle would meet with the sales manager, Logan Freidman. The meeting was usually about past sales, and whether there were changes to the selling strategy. This information was extremely important to Mingle, since he was responsible to ensure the marketing objectives are aligned with the sales objectives. During the year, Mingle made several changes to Gordon Sparks' marketing strategy. Mingle created a set of popular commercials, which were a complete success. Each commercial reached over 5,000,000 views on. YouTube. However, by the end of that year, Mingle realized that he did not receive a bonus from the company because the company's overall financial performance remained the same. Discuss the appropriateness of the company's bonus policy. English (en) CT-1 LO 134 Critical Thinking 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 Broomsticks $1,170,000 Magic Wands $983,000 Crystal Balls $2,210,000 Budgeted Income Statement for the next five years: Sales $500,000 $450,000 $650,000 Cost of Goods Sold 80.000 50,000 32.000 Gross Margin 420,000 400,000 618,000 Marketing and Administrative Expenses 100,000 130.000 22.000 Net Income ? ? *Assume all amounts stated on the budgeted income statement are cash items. Required a) Determine the net present value for each project assuming all cash flows cease after five years. ME ENGAG a) Determine the net present value for each project assuming all cash flows cease after five years. b) Which project should Hocus Pocus invest in and why? 298 Capital Budgeting c) If Hocus Pocus had a capital budget limit of $2,300,000, how should they invest it? Chapter 10