Kokomochi is considering the launch of an advertising

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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 million on advertising this year for the campaign. The ads are expected to boost sales of the Mini Mochi Munch by $9 million this year and by $7 million next year. The company expects that new consumers that 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 million each year.
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Problem 2 Given (continued): 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. Find: What are the incremental earnings associated with the advertising campaign?
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Year 0 1 2 Sales - COGS - Gross Profit - SGA - R&D - - - Depreciation - - - EBIT - Income Tax at 35% - Unlevered. NI - Problem 2
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Problem 2 Given: Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $5 million on advertising this year for the campaign. The ads are expected to boost sales of the Mini Mochi Munch by $9 million this year and by $7 million next year. The company expects that new consumers that 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 million each year.
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Year 0 1 2 Sales - COGS - Gross Profit - SGA - 5,000,000 R&D - - - Depreciation - - - EBIT - Income Tax at 35% - Unlevered. NI - Problem 2
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Problem 2 Given: Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $5 million on advertising this year for the campaign. The ads are expected to boost sales of the Mini Mochi Munch by $9 million this year and by $7 million next year. The company expects that new consumers that 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 million each year.
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Problem 2 Increase in gross profit. From Mini Mochi Munch: In 1 st year: $9,000,000 x .35 = $3,150,000 In 2 nd year: $7,000,000 x .35 = $2,450,000 From other products: In 1 st year: $2,000,000 x .25 = $500,000 In 2 nd year:$2,000,000 x .25 = $500,000
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Year 0 1 2 Sales - COGS - Gross Profit - 3,650,000 2,950,000 SGA - 5,000,000 - R&D - - - Depreciation - - - EBIT - (1,350,000) 2,950,000 Income Tax at 35% - 472,500 (1,032,500) Unlevered. NI - (877,500) 1,917,500 Problem 2
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Problem 3 Given: HBS, a retailer in the home improvement industry, currently operates seven retail outlets in Georgia and South Carolina. Management is contemplating building an eighth retail store across town from its most successful retail outlet. The company already owns the land for this store, which currently has an abandoned warehouse located on it.
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