Question
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $4.6 million on
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $4.6 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 $7.8 million this year and $5.8 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 $2.4 million each year.Kokomochi's gross profit margin for the Mini Mochi Munch is 36%, and its gross profit margin averages 21% 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?
We need four items to calculate incremental earnings: (1) incremental revenues, (2) incremental costs, (3) depreciation, and (4) the marginal tax rate. Complete the table below: (Round to the nearest dollar.) Incremental Earnings Forecast Year 1 Year 2 Sales of Mini Mochi Munch $ 7800000 $ 5800000 Other Sales 2400000 2400000 Cost of Goods Sold Gross Profit $ $ Selling, General, and Admin. Expenses Depreciation 0 0 EBIT $ TA $ Income tax at 21% Unlevered Net Income $Step by Step Solution
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