Advertising campaign for its latest dessert product

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Reference no: EM131893840

Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $5.36 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 $11.51 million this year and $ 9.51 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 $2.35 million each year. Kokomochi's gross profit margin for the Mini Mochi Munch is 33%, and its gross profit margin averages 24% 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?

Note: Assume that the company has adequate positive income to take advantage of the tax benefits provided by any net losses associated with this campaign.

Reference no: EM131893840

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