Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini Mochi Munch. Kokomochi plans to spend $\$ 5.00$ 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 $\$ 9.00$ million this year and $\$ 7.00$ 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 $\$ 2.00$ 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? 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 incremental earnings for year 1 below: (Round to three decimal places.) 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 $35 \%$ Incremental Earnings

Public Answer

DQOEIQ The First Answerer