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What incremental earning associate with advertise? campaign

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Reference no: EM132524800

Kokomochi is considering the launch of an advertising campaign for its latest dessert? product, the Mini Mochi Munch. Kokomochi plans to spend $3.74 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 $11.38 million this year and $9.38 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 $3.98 million each year.

Question 1: ?Kokomochi's gross profit margin for the Mini Mochi Munch is 35%?, and its gross profit margin averages 25% for all other products. The? company's marginal corporate tax rate is 38% 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.

Question 2: Calculate the incremental earnings for year 1? below:?(Round to three decimal? places.)

Year 1

Incremental Earnings Forecast ($ million)

Sales of Mini Mochi Munch

Other Sales

Cost of Goods Sold

Gross Profit

Selling, General, and Administrative

Depreciation

EBIT

Income Tax at 38%

Incremental Earnings

Reference no: EM132524800

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