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PepsiCo has recently launched a new product line. The following financial details pertain to the new product line's first year of operations. Income Statement for

PepsiCo has recently launched a new product line. The following financial details pertain to the new product line's first year of operations.

Income Statement for the Year Ended December 31, 2023:

  • Sales revenue: $500,000
  • Cost of goods sold: $300,000
  • Gross margin: $200,000
  • Operating expenses: $100,000
  • Depreciation expense: $20,000
  • Operating income: $80,000
  • Non-operating items: $5,000
  • Net income: $75,000

Balance Sheet as of December 31, 2023:

  • Assets:
    • Cash: $20,000
    • Accounts receivable: $50,000
    • Merchandise inventory: $40,000
    • Equipment (less accumulated depreciation): $100,000
    • Total assets: $210,000
  • Liabilities:
    • Accounts payable: $30,000
    • Notes payable: $60,000
    • Total liabilities: $90,000
    • Stockholders' equity: $120,000

Required:

  1. Calculate the ROI for PepsiCo’s new product line.
  2. Determine the effect on ROI if PepsiCo decides to reinvest $50,000 in the product line at an ROI of 14%.
  3. Analyze the impact on ROI if the reinvestment yields only 6%.
  4. Evaluate the strategic advantages and potential drawbacks of the reinvestment.

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