Question
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $4.31 million on
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $4.31 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 $11.43 million this year and $9.43 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 $2.46 million each year.
Kokomochi's gross profit margin for the Mini Mochi Munch is 34%,and its gross profit margin averages 24% for all other products. The company's marginal corporate tax rate is 45% both this year and next year. What are the unlevered net incomes associated with the advertising campaign?
Note: Assume that the company has adequate positive income to take advantage of the tax benefits provided by any net losses associated with this campaign.
YEAR 1
Incremental Earnings Forecast ($ million)
Sales of Mini Mochi Munch $ ?????
Other Sales $ ?????
Cost of Goods Sold $ ?????
Gross Profit $ ?????
Selling, General, and Administrative $ ?????
Depreciation $ ?????
EBIT $ ?????
Income Tax at 45% $ ?????
Unlevered Net Income $ ?????
Calculate the unlevered net income for year 2 below (Round to three decimal places.)
YEAR 2
Sales of Mini Mochi Munch $ ?????
Other Sales $ ?????
Cost of Goods Sold $ ?????
Gross Profit $ ?????
Selling, General, and Administrative $ ?????
Depreciation $ ?????
EBIT $ ?????
Income Tax at 45% $ ?????
Unlevered Net Income $ ?????
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