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Johnson & Johnson has introduced a new pharmaceutical product. The first-year financial results are presented below. Income Statement for the Year Ended December 31, 2023:

Johnson & Johnson has introduced a new pharmaceutical product. The first-year financial results are presented below.

Income Statement for the Year Ended December 31, 2023:

  • Sales revenue: $4,500,000
  • Cost of goods sold: $2,700,000
  • Gross margin: $1,800,000
  • Operating expenses: $900,000
  • Depreciation expense: $300,000
  • Operating income: $600,000
  • Non-operating items: $20,000
  • Net income: $580,000

Balance Sheet as of December 31, 2023:

  • Assets:
    • Cash: $200,000
    • Accounts receivable: $700,000
    • Merchandise inventory: $500,000
    • Equipment (less accumulated depreciation): $1,400,000
    • Total assets: $2,800,000
  • Liabilities:
    • Accounts payable: $600,000
    • Notes payable: $800,000
    • Total liabilities: $1,400,000
    • Stockholders' equity: $1,400,000

Required:

  1. Calculate the ROI for Johnson & Johnson’s new pharmaceutical product.
  2. Johnson & Johnson’s headquarters has $300,000 available, targeting an ROI of 14%. Calculate the new ROI if the funds are invested at an ROI of 18%.
  3. Evaluate the effect on ROI if the funds are invested at an ROI of 10%.
  4. Discuss the strategic benefits and potential risks of investing additional funds in the pharmaceutical product.

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