Question
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $6.1 million on
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend
$6.1
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
$8.6
million this year and
$6.6
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
39%,
and its gross profit margin averages
24%
for all other products. The company's marginal corporate tax rate is
35%
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 | |
Sales of Mini Mochi Munch | $ | 8.6 |
Other Sales | $ | 2.4 |
Cost of Goods Sold | $ |
|
Gross Profit | $ |
|
Selling, General, and Admin. Expenses | $ |
|
Depreciation |
| 0 |
EBIT | $ |
|
Income tax at 35% | $ |
|
Unlevered Net Income | $ |
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