Question
Kokomochi is considering the launch of an advertising campaign for its latest dessertproduct, the Mini Mochi Munch. Kokomochi plans to spend $5.7 million onTV, radio
Kokomochi is considering the launch of an advertising campaign for its latest dessertproduct, the Mini Mochi Munch. Kokomochi plans to spend $5.7 million onTV, radio and print advertising this year for the campaign. The ads are expected to boost sales of the Mini Mochi Munch by $7.6 million this year and $5.6 million next year. Inaddition, the company expects that new consumers who try the Mini Mochi Munch will be more likely to tryKokomochi's other products. As aresult, 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 33%, and its gross profit margin averages 23% for all other products. Thecompany's marginal corporate tax rate is 30% both this year and next year. What are the incremental earnings associated with the advertisingcampaign?
Complete the table for year 1below:(Round to the nearestdollar.)
Incremental earnings forecast
Year 1
Sales of Mini Mochi Munch:
Other sales:
Cost of goods sold:
Gross profit:
Selling, general and admin. expenses:
Depreciation: 0
EBIT:
Income tax at 30%:
Unlevered net profit:
Complete the table for year 2below:(Round to the nearestdollar.)
Incremental earnings forecast
Year 2
Sales of Mini Mochi Munch:
Other sales:
Cost of goods sold:
Gross profit:
Selling, general and admin. expenses:
Depreciation: 0
EBIT:
Income tax at 30%:
Unlevered net profit:
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