Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $ 5.2 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 $ 8.5 million this year and $ 6.5 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 $ 2.2 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?
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% $
Unlevered Net Income $
Calculate the unlevered net income for year 2 below:
YEAR 2
Sales of Mini Mochi Munch $
Other Sales $
Cost of Goods Sold $
Gross Profit $
Selling, General, and Administrative $
Depreciation $
EBIT $
Income Tax at 35% $
Unlevered Net Income $