Question

Kokomochi is considering the launch of an advertising campaign for its latest dessert​ product, the Mini Mochi Munch. Kokomochi plans to spend $ 5.88$5.88 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 $ 9.85$9.85 million this year and $ 7.85$7.85 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 $ 2.48$2.48 million each year. ​Kokomochi's gross profit margin for the Mini Mochi Munch is 34 %34%​, and its gross profit margin averages 24 %24% for all other products. The​ company's marginal corporate tax rate is 30 %30% both this year and next year. What are the incremental earnings associated with the advertising​ campaign? ​Note: Assume that the company has adequate positive income to take advantage of the tax benefits provided by any net losses associated with this campaign. Calculate the incremental earnings for year 1​ below:  ​(Round to three decimal​ places.) Year 1 Incremental Earnings Forecast ($ million) Sales of Mini Mochi Munch $ Other Sales $ Cost of Goods Sold $ Gross Profit $ Selling, General, and Administrative $ Depreciation $ EBIT $ Income Tax at 30% $ Incremental Earnings $

Answer 1

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