Question

Kokomochi is considering the launch of an advertising campaign for its latest dessert​ product, the Mini Mochi Munch. Kokomochi plans to spend $ 5.5 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 $ 9.5 million this year and $ 7.5 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 $ 1.7 million each year. ​Kokomochi's gross profit margin for the Mini Mochi Munch is 31 %​, and its gross profit margin averages 24 % for all other products. The​ company's marginal corporate tax rate is 35 % both this year and next year. What are the incremental earnings associated with the advertising​ campaign?

Answer 1

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