Question

Kokomochi is considering the launch of an advertising campaign for its latest dessert​ product, the Mini Mochi Munch. Kokomochi plans to spend $4.2 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 $9.4 million this year and $7.4 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 $2.1 million each year. ​

Kokomochi's gross profit margin for the Mini Mochi Munch is 37% ​, and its gross profit margin averages 24% for all other products. The​ company's marginal corporate tax rate is 25% 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 $

Cost of Goods Sold $

Gross Profit $

Selling, General, and Admin. Expenses $

Depreciation

EBIT $

Income tax at 25% $

Unlevered Net Income $

Answer 1