Question

Kokomochi is considering the launch of an advertising campaign for its latest dessert​ product, the Mini Mochi Munch. Kokomochi plans to spend

$ 5.96

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

$ 8.78

million this year and

$ 6.78

r. 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

$ 2.55

million each year.

​Kokomochi's gross profit margin for the Mini Mochi Munch is

34 %

and its gross profit margin averages

25 %

for all other products. The​ company's marginal corporate tax rate is

45 %

both this year and next year. What are the incremental earnings associated with the advertising​ campaign?

Note​:

Assume that the company has adequate positive income to take advantage of the tax benefits provided by any net losses associated with this campaign.

Answer 1