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Disney has introduced a new line of merchandise related to its latest animated movie. The first-year financial results are provided below. Income Statement for the

Disney has introduced a new line of merchandise related to its latest animated movie. The first-year financial results are provided below.

Income Statement for the Year Ended December 31, 2023:

  • Sales revenue: $3,000,000
  • Cost of goods sold: $1,800,000
  • Gross margin: $1,200,000
  • Operating expenses: $500,000
  • Depreciation expense: $150,000
  • Operating income: $550,000
  • Non-operating items: $30,000
  • Net income: $520,000

Balance Sheet as of December 31, 2023:

  • Assets:
    • Cash: $150,000
    • Accounts receivable: $500,000
    • Merchandise inventory: $400,000
    • Equipment (less accumulated depreciation): $1,000,000
    • Total assets: $2,050,000
  • Liabilities:
    • Accounts payable: $400,000
    • Notes payable: $600,000
    • Total liabilities: $1,000,000
    • Stockholders' equity: $1,050,000

Required:

  1. Calculate the ROI for Disney’s new merchandise.
  2. Disney’s headquarters has $200,000 available for investment, seeking an ROI of 12%. Calculate the new ROI if the funds are invested at an ROI of 15%.
  3. Evaluate the effect on ROI if the funds are invested at an ROI of 8%.
  4. Discuss the strategic benefits and potential risks of investing additional funds in the new merchandise.

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