In: Finance
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend
$ 6.4$6.4
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
$ 8.8$8.8
million this year and
$ 6.8$6.8
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
$ 1.6$1.6
million each year.Kokomochi's gross profit margin for the Mini Mochi Munch is
33 %33%,
and its gross profit margin averages
22 %22%
for all other products. The company's marginal corporate tax rate is
35 %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 |
$ |
|
Other Sales |
$ |
1600000 |
Cost of Goods Sold |
$ |
|
Gross Profit |
$ |
|
Selling, General, and Admin. Expenses |
$ |
6400000 |
Depreciation |
0 |
|
EBIT |
$ |
|
Income tax at 35% |
$ |
|
Unlevered Net Income |
$ |
Year 2 :