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