Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $4.16 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 $9.49 million this year and $7.49 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 $3.48 million each year. Kokomochi's gross profit margin for the Mini Mochi Munch is 35%, and its gross profit margin averages 24% for all other products. The company's marginal corporate tax rate is 38% both this year and next year. What are the incremental earnings associated with the advertising campaign? Note: Assume that the company has adequate positive income to take advantage of the tax benefits provided by any net losses associated with this campaign. Incremental Earnings Forecast ($ 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 $ 6969 $ EA $ $ EA EA $ $ EA $ Year 1

Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $4.16 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 $9.49 million this year and $7.49 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 $3.48 million each year. Kokomochi's gross profit margin for the Mini Mochi Munch is 35%, and its gross profit margin averages 24% for all other products. The company's marginal corporate tax rate is 38% both this year and next year. What are the incremental earnings associated with the advertising campaign? Note: Assume that the company has adequate positive income to take advantage of the tax benefits provided by any net losses associated with this campaign. Incremental Earnings Forecast ($ 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 $ 6969 $ EA $ $ EA EA $ $ EA $ Year 1

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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