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Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $3.7 million on
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend \$3.7 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 $9.4 million this year and $7.4 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 $1.7 million each year. Kokomochi's gross profit margin for the Mini Mochi Munch is 32%, and its gross profit margin averages 23% for all other products. The company's marginal corporate tax rate is 25% both this year and next year. What are the incremental earnings associated with the advertising campaign? \begin{tabular}{|c|c|c|c|} \hline Incremental Earnings Forecast & Year 1 & \multicolumn{2}{|r|}{ Year 2} \\ \hline Sales of Mini Mochi Munch & $[ & $ & \\ \hline Other Sales & & & \\ \hline Cost of Goods Sold & & & \\ \hline Gross Profit & $[ & $ & \\ \hline Selling, General, and Admin. Expenses & & & \\ \hline Depreciation & & & 0 \\ \hline EBIT & $ & $ & \\ \hline Income tax at 25% & & & \\ \hline Unlevered Net Income & $ & $ & \\ \hline \end{tabular}
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