Determine the net present value for each project assuming

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Reference no: EM133437198

Question: 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.

	Broomsticks	Magic wands	Crystal balls
Net Initial Investment	$1,170,000	$983,000	$2,210,000
Budgeted Income Statement for the next five years: sales	$500,000	$450,000	$650,000
Cost of goods sold	80,000	50,000	32,000
Gross margin	420,000	400,000	618,000
Marketing and administrative expenses	100,000	130,000	22,000
Net Income	?	?	?

*Assume all amounts stated on the budgeted income statement are cash items.

A.)Determine the net present value for each project assuming all cash flows cease after five years.

B. Which project should Hocus Pocus invest in and why?

c.)If Hocus Pocus had a capital Budget limit of 2,300,000 ,how should they invest it?

Reference no: EM133437198

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