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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 $3.76 million on
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $3.76 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 $9.22 million this year and $7.22 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 $2.03 million each year. Kokomochi's gross profit margin for the Mini Mochi Munch is 36%, and its gross profit margin averages 24% for all other products. The company's marginal corporate tax rate is 40% both this year and next year. What are the incremental earnings associated with the advertising campaign? Note: Assume that the company has adequate positive income to take advantage of the tax benefits provided by any net losses associated with this campaign. Calculate the incremental earnings for year 1 below: (Round to three decimal places.) Year 1 S S S S Incremental Earnings Forecast ($ million) Sales of Mini Mochi Munch $ Other Sales Cost of Goods Sold Gross Profit Selling, General, and Administrative Depreciation EBIT $ Income Tax at 40% Incremental Earnings Calculate the incremental earnings for year 2 below: (Round to three decimal places.) S S S Year 2 S S S Incremental Earnings Forecast ($ million) Sales of Mini Mochi Munch Other Sales Cost of Goods Sold Gross Profit Selling, General, and Administrative Depreciation EBIT S S S S Income Tax at 40% S Incremental Earnings S
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