Question

Kokomochi is considering the launch of an advertising campaign for its latest dessert​ product, the Mini Mochi Munch. Kokomochi plans to spend $5.7 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 $9.1 million this year and $7.1 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 $2.3 million each year. ​Kokomochi's gross profit margin for the Mini Mochi Munch is 37%​, and its gross profit margin averages 22% 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