Question
Bangers, Inc. is a start-up manufacturer of Australian-style frozen veggie pies located in San Antonio, Texas. The company is five years old and recently installed
Bangers, Inc. is a start-up manufacturer of Australian-style frozen veggie pies located in San Antonio, Texas. The company is five years old and recently installed the manufacturing capacity to quadruple its unit sales. To jump start the demand for its products, the company founders have hired a local advertising firm to create a series of ads for its new line of meat pies. The ads will cost the firm $500,000 to run for one year. Bangers' management hopes that the advertising will produce annual sales of $2 million for its meat pies. Moreover, the firm's management expects that sales of its veggie pies will increase by $150,000
next year as a result of the company name recognition derived from the meat pie ad campaign. If Bangers' operating profits per dollar of new sales revenue are 45
percent and the firm faces a 34 percent tax bracket, what is the incremental operating profit the firm can expect to earn from the ad campaign? Does the decision to place the ad look good from the perspective of the anticipated profits?
1. The incremental operating profit the firm can expect to earn from the ad campaign for year 1 is $ . (Round to the nearest dollar.)
2. The incremental operating profit the firm can expect to earn from the ad campaign for year 2 is $. (Round to the nearest dollar.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started