Case Study 3 Constructed Response Answer Hocus Pocus Company wants to increase sales by adding a new product line. The company is considering three different projects. However, its capital budget is limited to $1,500,000. In addition, the company requires a rate of return of 10%. The information concerning the three product lines is given below. Net Initial Investment Budgeted Income Statement for the next five years: Sales Cost of Goods Sold Gross Margin Marketing and Administrative Expenses Net Income Broomsticks $1,170,000 $500,000 80,000 420,000 100,000 ? Magic Wands $983,000 *Assume all amounts stated on the budgeted income statement are cash items. $450,000 50,000 400,000 130,000 ? Crystal Balls $2,210,000 Required a) Determine the net present value for each project assuming all cash flows cease after five years. $650,000 32,000 618,000 22,000 ?
Case Study 3 Constructed Response Answer Hocus Pocus Company wants to increase sales by adding a new product line. The company is considering three different projects. However, its capital budget is limited to $1,500,000. In addition, the company requires a rate of return of 10%. The information concerning the three product lines is given below. Net Initial Investment Budgeted Income Statement for the next five years: Sales Cost of Goods Sold Gross Margin Marketing and Administrative Expenses Net Income Broomsticks $1,170,000 $500,000 80,000 420,000 100,000 ? Magic Wands $983,000 *Assume all amounts stated on the budgeted income statement are cash items. $450,000 50,000 400,000 130,000 ? Crystal Balls $2,210,000 Required a) Determine the net present value for each project assuming all cash flows cease after five years. $650,000 32,000 618,000 22,000 ?
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter13: Financial Statement Analysis
Section: Chapter Questions
Problem 13.3AP
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Question
![Case Study 3 Constructed Response Answer
Hocus Pocus Company wants to increase sales by adding a new product line. The company is considering
three different projects. However, its capital budget is limited to $1,500,000. In addition, the company
requires a rate of return of 10%. The information concerning the three product lines is given below.
Net Initial Investment
Budgeted Income Statement for the next five years:
Sales
Cost of Goods Sold
Gross Margin
Marketing and Administrative Expenses
Net Income*
Broomsticks
$1,170,000
$500,000
80,000
420,000
100,000
?
Magic Wands
$983,000
*Assume all amounts stated on the budgeted income statement are cash items.
$450,000
50,000
400,000
130,000
?
Crystal Balls
$2,210,000
Required
a) Determine the net present value for each project assuming all cash flows cease after five years.
$650,000
32,000
618,000
22,000
?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fffe50348-4157-4adf-95a6-b2ced7bda627%2Fb66a239e-5453-4fa9-9fa4-38ed32c7205d%2Fwlr6gvkb_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Case Study 3 Constructed Response Answer
Hocus Pocus Company wants to increase sales by adding a new product line. The company is considering
three different projects. However, its capital budget is limited to $1,500,000. In addition, the company
requires a rate of return of 10%. The information concerning the three product lines is given below.
Net Initial Investment
Budgeted Income Statement for the next five years:
Sales
Cost of Goods Sold
Gross Margin
Marketing and Administrative Expenses
Net Income*
Broomsticks
$1,170,000
$500,000
80,000
420,000
100,000
?
Magic Wands
$983,000
*Assume all amounts stated on the budgeted income statement are cash items.
$450,000
50,000
400,000
130,000
?
Crystal Balls
$2,210,000
Required
a) Determine the net present value for each project assuming all cash flows cease after five years.
$650,000
32,000
618,000
22,000
?
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