Cost of good solds and profits of Mini Mochi Munch, Business Finance homework help

Kokomochi is considering the launch of an advertising campaign for its latest dessert product,
the Mini Mochi Munch. Kokomochi plans to spend $2.45 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 $11.94 million this year and by $9.94 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 $2.92 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 35% both
this year and next year. What are the incremental earnings associated with the advertising
campaign? 

Note: Assume that the company has adequate positive income to take advantage of the tax benefits provided by any net losses associated with this campaign.

Calculate the unlevered net income for year 1 and year 2 below:

Incremental Earnings Forecast ($ million)

Year 1

Sales of Mini Mochi Munch  ___________

Other Sales __________

Cost of Goods Sold __________

Gross Profit  __________

Selling, General & Admin.  __________

Depreciation __________

EBIT __________

Income tax at 35% __________

Unlevered Net Income __________