Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi
Question:
Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $6.2 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 $10.2 million this year and by $8.2 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 39%, and its gross profit margin averages 23% 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?
Step by Step Answer:
Fundamentals Of Corporate Finance
ISBN: 9781292437156
5th Global Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford