Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi

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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 \($4.78\) 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 \($9.31\) million this year and by \($7.31\) 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 \($3.44\) million each year.

Kokomochi’s gross profit margin for the Mini Mochi Munch is 33%, and its gross profit margin averages 24% for all other products. The company’s marginal corporate tax rate is 40% both this year and next year. What are the incremental earnings associated with the advertising campaign?

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Corporate Finance

ISBN: 9781292446318

6th Global Edition

Authors: Jonathan Berk, Peter DeMarzo

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