Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $5.0 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 $9.0 million this year and $7.0 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 $2.0 million each year. 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 21% both this year and next year. What are the incremental earnings associated with the advertising campaign?
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $5.0 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 $9.0 million this year and $7.0 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 $2.0 million each year. 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 21% both this year and next year. What are the incremental earnings associated with the advertising campaign?
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
$5.0 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 $9.0
million this year and $7.0 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 $2.0 million each year. Kokomochi's gross profit margin for the Mini Mochi Munch is 35%, and its gross profit margin averages25% for all other products. The company's marginal corporate tax rate is
21% both this year and next year.
What are the incremental earnings associated with the advertising campaign?
Complete the table below: (Round to the nearest dollar.)
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Incremental Earnings
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Year 1
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Year 2
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||
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Sales of Mini Mochi Munch
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$
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$
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|
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Other Sales
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|
|
|
|
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Cost of Goods Sold
|
|
|
|
|
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Gross Profit
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$
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$
|
|
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Selling, General, and Admin. Expenses
|
|
|
|
|
|
|
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0
|
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0
|
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EBIT
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$
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$
|
|
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Income tax at 21%
|
|
|
|
|
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Unlevered Net Income
|
$
|
|
$
|
|
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