Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $4.41 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 $11.14 million this year and $9.14 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 $3.07 million each year. Kokomochi's gross profit margin for the Mini Mochi Munch is 33%, and its gross profit margin averages 24% for all other products. The company's marginal corporate tax rate is 35% both this year and next year. What are the incremental earnings associated with the advertising campaign? Note: Assume that the company has adequate positive income to take advantage of the tax benefits provided by any net losses associated with this campaign. Calculate the incremental earnings for year 1 below: (Round to three decimal places.) Incremental Earnings Forecast ($ million) Sales of Mini Mochi Munch Other Sales Cost of Goods Sold Gross Profit Selling, General, and Administrative Depreciation EBIT Income Tax at 35% Incremental Earnings $ $ $ $ $ $ $ $ $ Year 1
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $4.41 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 $11.14 million this year and $9.14 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 $3.07 million each year. Kokomochi's gross profit margin for the Mini Mochi Munch is 33%, and its gross profit margin averages 24% for all other products. The company's marginal corporate tax rate is 35% both this year and next year. What are the incremental earnings associated with the advertising campaign? Note: Assume that the company has adequate positive income to take advantage of the tax benefits provided by any net losses associated with this campaign. Calculate the incremental earnings for year 1 below: (Round to three decimal places.) Incremental Earnings Forecast ($ million) Sales of Mini Mochi Munch Other Sales Cost of Goods Sold Gross Profit Selling, General, and Administrative Depreciation EBIT Income Tax at 35% Incremental Earnings $ $ $ $ $ $ $ $ $ Year 1
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 $4.41 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 $11.14 million this year and $9.14 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 $3.07 million each year.
Kokomochi's gross profit margin for the Mini Mochi Munch is 33%, and its gross profit margin averages 24% for all other
products. The company's marginal corporate tax rate is 35% both this year and next year. What are the incremental
earnings associated with the advertising campaign?
Note: Assume that the company has adequate positive income to take advantage of the tax benefits provided by any net
losses associated with this campaign.
Calculate the incremental earnings for year 1 below: (Round to three decimal places.)
Incremental Earnings Forecast ($ million)
Sales of Mini Mochi Munch
Other Sales
Cost of Goods Sold
Gross Profit
Selling, General, and Administrative
Depreciation
EBIT
Income Tax at 35%
Incremental Earnings
$
$
$
$
GA
GA
E
$
$
FA
$
Year 1
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