Question

Kokomochi is considering the launch of an advertising campaign for its latest dessert​ product, the Mini Mochi Munch. Kokomochi plans to spend $ 4.4 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 $ 9.2 million this year and $ 7.2 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 $ 1.9 million each year. ​Kokomochi's gross profit margin for the Mini Mochi Munch is 32 %​, and its gross profit margin averages 20 % 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	$

Answer 1