Question

Kokomochi is considering the launch of an advertising campaign for its latest dessert​ product, the Mini Mochi Munch. Kokomochi plans to spend $5.1 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 $8.6 million this year and $6.6 million next year. In​ addition, the company expects that new consumer who tries 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 $1.6 million each year.​Kokomochi's gross profit margin for the Mini Mochi Munch is 32%​, and its gross profit margin averages 22% 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?

Complete the table​ below:  ​(Round to the nearest​ dollar.)

Incremental Earnings Forecast	Year 1
Sales of Mini Mochi Munch	$
Other Sales	$
Cost of Goods Sold	$
Gross Profit	$
Selling, General, and Admin. Expenses	$
Depreciation		0
EBIT	$
Income tax at 35%	$
Unlevered Net Income	$

Answer 1

A B C D 1 Incremental earnings forecast 2 Sales of Mini Mochi Munch 3 other sales 4 Cost of goods sold 5 Gross profit 6 Selling, General and Admin, Expenses 7 Depreciation 8 EBIT 9 Income tax @ 35% 10 Unlevered Net income Year1 Year2 $ 8,600,000 $ 6,600,000 $ 1,600,000 $ 1,600,000 $ 7,096,000 $ 5,736,000 --C2-C3+C5 $ 3,104,000 $ 2,464,000 =(C2*32%+C3*22%) $ 5,100,000 $ 0 $ 0 $ 0 $ 1,996,000 $ 2,464,000 =C5+C6+C7 $ 698,600 $ 862,400 --C8*0.35 -$ 1,297,400 $ 1,601,600 =C8+c9

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