Problem 3 (Adapted) Uncle Nenens Company includes one coupon in each package of cereal it sells. A towel is offered as a premium to customers who send in 10 coupons and a cash remittance of 10 pesos. The cost to distribute each towel is 5 each.

Data for the premium offer are:

First Year Second Year

Packages of cereal sold at 30 each 875000 1,400,000

# of towels purchased at 40 per towel 52,500 105,000

# of towels distributed as premiums 35,000 87,500

# of towels to be distributed as premium

Next period 8,750 5,250

The company's general & administrative expense for year 1 are 10% and 15% of total sales respectively, while the total distribution and selling expense is 12% and 16% of total sales respectively. The entity's interest on loans amounted to 120,000 and the current year's tax rate is 30%.