Question
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $5.2 million on
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend
$5.2
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
$9.1
million this year and
$7.1
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
20%
for all other products. The company's marginal corporate tax rate is
21%
both this year and next year. What are the incremental earnings associated with the advertising campaign?
Complete the table below:(Round to the nearest dollar.)
Incremental Earnings Forecast | Year 1 | Year 2 | ||
Sales of Mini Mochi Munch | $ | $ |
| |
Other Sales |
|
|
|
|
Cost of Goods Sold |
|
|
|
|
Gross Profit | $ |
| $ |
|
Selling, General, and Admin. Expenses |
|
|
|
|
Depreciation |
| 0 |
| 0 |
EBIT | $ |
| $ |
|
Income tax at 21% |
|
|
|
|
Unlevered Net Income | $ |
| $ |
|
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