Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend$ 5.3million on TV, radio and print advertising this year for the campaign. The ads are expected to boost sales of the Mini Mochi Munch by $ 7.million this year and $ 5.7million 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 $ 1.7million each year.Kokomochi's gross profit margin for the Mini Mochi Munch is 32 %, and its gross profit margin averages 21 %for all other products. The company's marginal corporate tax rate is 30 % both this year and next year. Show the incremental earning forecast for year 1 and year 2.
Incremental Earning Forecast for Year 1 and Year 2 is calculated as below.
| Particulars | Year 1 | Year 2 | Explanations | |
| Sales | 7,000,000 | 5,700,000 | (Given) | |
| Add: Other Sales | $1,700,000 | $1,700,000 | (Given) | |
| Less: Cost of Goods Sold | $6,103,000.00 | $5,219,000.00 | COGS = Sales * (1-32%) + Additional sales of 1.7 million * (1-21%) | |
| Gross Profit | $2,597,000.00 | $2,181,000.00 | Gross Profit = Sales+Additional Sales - COGS | |
| Less: Selling, general and admin exp. | $5,300,000 | $0 | (Given: Adv. Expenses) | |
| Less: depreciation | $0 | $0 | ||
| EBIT | ($2,703,000.00) | $2,181,000.00 | EBIT = Gross Profit - Selling and Admin Exp | |
| Less: Income Tax (30%) | ($810,900.00) | $654,300.00 | Income Tax @30% | |
| Unlevered Net Income | ($1,892,100.00) | $1,526,700.00 | = EBIT - Tax. |
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