Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $5.4 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 $9.3 million this year and $7.3 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 $1.7 million each year. Kokomochi's gross profit margin for the Mini Mochi Munch is 36%, and its gross profit margin averages 24% 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?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 $5.4 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 $9.3 million this year and $7.3 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 $1.7 million each year.
Kokomochi's gross profit margin for the Mini Mochi Munch is 36%, and its gross profit margin averages 24% 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.)
Incremental Earnings Forecast
Year 1
Sales of Mini Mochi Munch
Other Sales
Cost of Goods Sold
Gross Profit
Selling, General, and Admin. Expenses
Depreciation
EBIT
Income tax at 21%
Unlevered Net Income
$
$
$
$
0
$
$
$
Year 2
0
Transcribed Image Text:K Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $5.4 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 $9.3 million this year and $7.3 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 $1.7 million each year. Kokomochi's gross profit margin for the Mini Mochi Munch is 36%, and its gross profit margin averages 24% 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.) Incremental Earnings Forecast Year 1 Sales of Mini Mochi Munch Other Sales Cost of Goods Sold Gross Profit Selling, General, and Admin. Expenses Depreciation EBIT Income tax at 21% Unlevered Net Income $ $ $ $ 0 $ $ $ Year 2 0
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