Question
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $4.8 million on
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $4.8 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 $9.9 million this year and $7.9 million next year. In addition, the company expects that new consumers who try the Mini Mochi Munch will be more likely to try Kokomochi's other products. As a result, sales of other products are expected to rise by $1.8 million each year. Kokomochi's gross profit margin for the Mini Mochi Munch is 31%, and its gross profit margin averages 23% for all other products. The company's marginal corporate tax rate is 30% both this year and next year. What are the incremental earnings associated with the advertising campaign?
Complete the table for year 1 below:(Round to the nearest dollar.)
Incremental earnings forecast | Year 1 | |
Sales of Mini Mochi Munch | $ |
|
Other sales |
|
|
Cost of goods sold |
|
|
Gross profit | $ |
|
Selling, general and admin. expenses |
|
|
Depreciation |
| 0 |
EBIT | $ |
|
Income tax at 30% |
|
|
Unlevered net profit | $ |
|
Part 2
Complete the table for year 2 below:(Round to the nearest dollar.)
Incremental earnings forecast | Year 2 | |
Sales of Mini Mochi Munch | $ |
|
Other sales |
|
|
Cost of goods sold |
|
|
Gross profit | $ |
|
Selling, general and admin. expenses |
|
|
Depreciation |
| 0 |
EBIT | $ |
|
Income tax at 30% |
|
|
Unlevered net profit | $ |
|
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