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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 $ 4 .

Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $4.1 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 $10.3 million this year and $8.3 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 $1.9 million each year.
Kokomochi's gross profit margin for the Mini Mochi Munch is 32%, and its gross profit margin averages 23% for all other products. The company's marginal corporate tax rate is 25% both this year and next year. What are the incremental earnings associated with the advertising campaign?
Incremental Earnings Forecast
Year 1
Year 2
Sales of Mini Mochi Munch
$
10,300,000
$
8,300,000
Other Sales
1,900,000
1,900,000
Cost of Goods Sold
(8,467,000)
(7,107,000)
Gross Profit
$
3,733,000
$
3,093,000
Selling, General, and Admin. Expenses
(4,100,000)
0
Depreciation
0
EBIT
Income tax at 25%
Unlevered Net Income
$

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