Question

Kokomochi is considering the launch of an advertising campaign for its latest dessert​ product, the Mini Mochi Munch. Kokomochi plans to spend $ 4.9 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 $ 8.9 million this year and $ 6.9 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 $ 2.5 million each year. ​Kokomochi's gross profit margin for the Mini Mochi Munch is 37 %​, and its gross profit margin averages 22 % for all other products. The​ company's marginal corporate tax rate is 30 % both this year and next year. What are the incremental earnings associated with the advertising​ campaign?

Complete the table for year 1​ below:  ​(Round to the nearest​ dollar.)

Incremental earnings forecast	Year 1
Sales of Mini Mochi Munch	$
Other sales
Cost of goods sold
Gross profit	$
Selling, general and admin. expenses
Depreciation		0
EBIT	$
Income tax at 30%
Unlevered net profit	$

Complete the table for year 2​ below:  ​(Round to the nearest​ dollar.)

Incremental earnings forecast	Year 2
Sales of Mini Mochi Munch	$
Other sales
Cost of goods sold
Gross profit	$
Selling, general and admin. expenses
Depreciation		0
EBIT	$
Income tax at 30%
Unlevered net profit	$

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Answer 1

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