Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $3.35 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 $9.38 million this year and $7.38 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 $2.46 million each year. Kokomochi's gross profit margin for the Mini Mochi Munch is 35%, and its gross profit margin averages 25% for all other products. The company's marginal corporate tax rate is 35% both this year and next year. What are the incremental earnings associated with the advertising campaign? Note: Assume that the company has adequate positive income to take advantage of the tax benefits provided by any net losses associated with this campaign. Calculate the incremental earnings for year 1 below: (Round to three decimal places.) Year 1 Incremental Earnings Forecast ($ million) Sales of Mini Mochi Munch Other Sales Cost of Goods Sold Gross Profit Selling, General, and Administrative Depreciation EBIT Income Tax at 35% Incremental Earnings $ $ $ $ $ $ $ $ ...
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $3.35 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 $9.38 million this year and $7.38 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 $2.46 million each year. Kokomochi's gross profit margin for the Mini Mochi Munch is 35%, and its gross profit margin averages 25% for all other products. The company's marginal corporate tax rate is 35% both this year and next year. What are the incremental earnings associated with the advertising campaign? Note: Assume that the company has adequate positive income to take advantage of the tax benefits provided by any net losses associated with this campaign. Calculate the incremental earnings for year 1 below: (Round to three decimal places.) Year 1 Incremental Earnings Forecast ($ million) Sales of Mini Mochi Munch Other Sales Cost of Goods Sold Gross Profit Selling, General, and Administrative Depreciation EBIT Income Tax at 35% Incremental Earnings $ $ $ $ $ $ $ $ ...
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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Transcribed Image Text:Kokomochi is planning an advertising campaign for its new dessert, Mini Mochi Munch. The company will spend $3.35 million on TV, radio, and print ads this year. The campaign aims to increase Mini Mochi Munch sales by $9.38 million this year and $7.38 million next year. Additionally, there is an expected annual increase of $2.46 million in sales of other Kokomochi products due to new consumer interest.
Key financial details include a 35% gross profit margin for Mini Mochi Munch and a 25% average gross profit margin for other products. The marginal corporate tax rate is set at 35% for both this year and next year.
**Objective:** Calculate the incremental earnings associated with the advertising campaign.
**Assumption:** The company has sufficient positive income to leverage the tax benefits of any net losses from this campaign.
### Incremental Earnings Calculation for Year 1
**Year 1**
- **Incremental Earnings Forecast ($ million)**
- Sales of Mini Mochi Munch: $______
- Other Sales: $______
- Cost of Goods Sold: $______
- Gross Profit: $______
- Selling, General, and Administrative: $______
- Depreciation: $______
- EBIT (Earnings Before Interest and Taxes): $______
- Income Tax at 35%: $______
- Incremental Earnings: $______
*Instructions:* Fill in the forecast values and ensure final calculations are rounded to three decimal places.
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