IBM has launched a new cloud service. The financial results for the first year are shown below.

Income Statement for the Year Ended December 31, 2023:

• Sales revenue: $3,800,000
• Cost of goods sold: $2,300,000
• Gross margin: $1,500,000
• Operating expenses: $800,000
• Depreciation expense: $200,000
• Operating income: $500,000
• Non-operating items: $40,000
• Net income: $460,000

Balance Sheet as of December 31, 2023:

• Assets:
  • Cash: $150,000
  • Accounts receivable: $600,000
  • Merchandise inventory: $400,000
  • Equipment (less accumulated depreciation): $1,500,000
  • Total assets: $2,650,000
• Liabilities:
  • Accounts payable: $500,000
  • Notes payable: $700,000
  • Total liabilities: $1,200,000
  • Stockholders' equity: $1,450,000

Required:

1. Calculate the ROI for IBM’s new cloud service.
2. IBM’s headquarters has $250,000 to allocate to the cloud service, targeting an ROI of 12%. Calculate the new ROI if the investment yields an ROI of 15%.
3. Assess the impact on the ROI if the funds are invested at an ROI of 8%.
4. Discuss the potential strategic advantages and risks of reinvesting in the cloud service.