Kokomochi is considening the launch of an advertising campaign for its latest de

Question

Kokomochi is considening the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $5.5 illion on TV radio, and print advertising this year for the campaign. The ads are expected to boost sales of the Mini Mochi Munch by $8.4 million this year and $6.4 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 $2.4 million each year Koko ochi's gross profit margin for the Mini Mochi Munch is 32%, and its gross profit margin averages 20% 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? Sales of Mini Mochi Munch Other Sales Cost of Goods Sold Gross Profit Selling, General, and Admin. Expenses Depreciation EBIT Income tax at 35% Unlevered Net Income nter any number in the edit fields and then continue to the next question Save for Later

Explanation / Answer

This year Next year Sales of Mini Mochi Munch $     8,400,000 $    6,400,000 Other sales $     2,400,000 $    2,400,000 Cost of goods sold $     7,632,000 $    6,272,000 Gross profit $     3,168,000 $    2,528,000 Selling, General and Admn. Expenses $     5,500,000 $                   -   Depreciation $                     -   $                   -   EBIT $   (2,332,000) $    2,528,000 Income tax at 35% $       (816,200) $        884,800 Unlevered net income $   (1,515,800) $    1,643,200

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