Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $4.13 million on TV, radio, and print advertising this year for the campaign. The ads are expected to boost sales of the Mini Mochi Munch by $8.31 million this year and by $6.31 million next year. In addition, the company expects that new consumers who try the Mini Mochi Munch will be more likely to try Kokomochis other products. As a result, sales of other products are expected to rise by $2.38 million each year.

Kokomochis gross profit margin for the Mini Mochi Munch is 35%, and its gross profit margin averages 25% for all other products. The companys marginal corporate tax rate is 35% both this year and next year. What are the incremental earnings associated with the advertising campaign?

YEAR 1

Incremental Earnings Forecast ($ million)

Sales of Mini Mochi Munch $ ?????

Other Sales $ ?????

Cost of Goods Sold $ ?????

Gross Profit $ ?????

Selling, General, and Administrative $ ?????

Depreciation $ ?????

EBIT $ ?????

Income Tax at 35% $ ?????

Unlevered Net Income $ ?????

Calculate the unlevered net income for year 2 below:

YEAR 2

Sales of Mini Mochi Munch $ ?????

Other Sales $ ?????

Cost of Goods Sold $ ?????

Gross Profit $ ?????

Selling, General, and Administrative $ ?????

Depreciation $ ?????

EBIT $ ?????

Income Tax at 35% $ ?????

Unlevered Net Income $ ?????