Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $4.2 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 $7.8 million this year and $5.8 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 $2.2 million each year. Kokomochi's gross profit margin for the Mini Mochi Munch is 36%, and its gross profit margin averages 23% for all other products. The company's marginal corporate tax rate is 28% both this year and next year. What are the incremental earnings associated with the advertising campaign? We need four items to calculate incremental earnings: (1) incremental revenues, (2) incremental costs, (3) depreciation, and (4) the marginal tax rate. Complete the table below: (Round to the nearest dollar.) Incremental Earnings Forecast Sales of Mini Mochi Munch Year 1 Year 2 7,800,000 $ 5,800,000 Other Sales 2,200,000 2,200,000 Cost of Goods Sold (6,686,000) (5,406,000) ot Gross Profit $ 3,314,000 $ 2,594,000 Selling, General, and Admin. Expenses (4,200,000) 10 1 Depreciation 0 0 ot EBIT S (886,000) $ 2,594,000 Income tax at 28% 248,080 (726,320) ri Unlevered Net Income $ (637,920) $ 1,867,680 pt

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend
$4.2 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 $7.8
million this year and $5.8 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 $2.2 million each year.
Kokomochi's gross profit margin for the Mini Mochi Munch is 36%, and its gross profit margin averages 23% for all other products. The company's
marginal corporate tax rate is 28% both this year and next year. What are the incremental earnings associated with the advertising campaign?
We need four items to calculate incremental earnings: (1) incremental revenues, (2) incremental costs, (3) depreciation, and (4) the marginal tax
rate.
Complete the table below: (Round to the nearest dollar.)
Incremental Earnings Forecast
Sales of Mini Mochi Munch
Year 1
Year 2
7,800,000 $
5,800,000
Other Sales
2,200,000
2,200,000
Cost of Goods Sold
(6,686,000)
(5,406,000)
ot
Gross Profit
$
3,314,000 $
2,594,000
Selling, General, and Admin. Expenses
(4,200,000)
10
1
Depreciation
0
0
ot
EBIT
S
(886,000) $
2,594,000
Income tax at 28%
248,080
(726,320)
ri
Unlevered Net Income
$
(637,920) $ 1,867,680
pt
Transcribed Image Text:Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $4.2 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 $7.8 million this year and $5.8 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 $2.2 million each year. Kokomochi's gross profit margin for the Mini Mochi Munch is 36%, and its gross profit margin averages 23% for all other products. The company's marginal corporate tax rate is 28% both this year and next year. What are the incremental earnings associated with the advertising campaign? We need four items to calculate incremental earnings: (1) incremental revenues, (2) incremental costs, (3) depreciation, and (4) the marginal tax rate. Complete the table below: (Round to the nearest dollar.) Incremental Earnings Forecast Sales of Mini Mochi Munch Year 1 Year 2 7,800,000 $ 5,800,000 Other Sales 2,200,000 2,200,000 Cost of Goods Sold (6,686,000) (5,406,000) ot Gross Profit $ 3,314,000 $ 2,594,000 Selling, General, and Admin. Expenses (4,200,000) 10 1 Depreciation 0 0 ot EBIT S (886,000) $ 2,594,000 Income tax at 28% 248,080 (726,320) ri Unlevered Net Income $ (637,920) $ 1,867,680 pt
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