Question

Kokomochi is considering the launch of an advertising campaign for its latest dessert​ product, the Mini Mochi Munch. Kokomochi plans to spend

$6.7

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

$10.9

million this year and

$8.9

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

$2.8

million each year.

​Kokomochi's gross profit margin for the Mini Mochi Munch is

46%​,

and its gross profit margin averages

26%

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