1. PepsiCo, Inc. plans to launch a new line of energy drinks. The marketing expenses associated with launching the new product will generate operating losses of $500 million next year for the product (EBIT = -$500 M).

Pepsi expects to earn pre-tax income of $10 billion from operations other than the new energy drinks next year. Pepsi pays a 40% tax rate on its pre-tax income

1. What will Pepsi owe in taxes next year without the new energy drinks?

2. What will it owe with the new energy drinks?

2. Cash and Go (CSG) is a grocery store. It is considering offering one hour photo developing in their store. The firm expects that sales from the new one-hour machine will be $150,000 per year. CSG currently offers overnight film processing with annual sales of $100,000. While many of the one-hour photo sales will be to new customers, CSG estimates that 70% of their current overnight photo customers will switch and use the one-hour service.

Estimate level of incremental sales associated with introducing the new one-hour photo service.