Incremental earnings arising from the promotional campaign

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Reference no: EM132064090

1. CathFoods will release a new range of candies which contain anti-oxidants. New equipment to manufacture the candy will cost $3 million, which will be depreciated by straight-line depreciation over four years. In addition, there will be $5 million spent on promoting the new candy line. It is expected that the range of candies will bring in revenues of $5 million per year for five years with production and support costs of $1.5 million per year. If CathFood's marginal tax rate is 35%, what are the incremental earnings in the second year of this project?

A. $2.750million

B. $1.788 million

C. $1.750million

D. $0.963 million

2. A brewer is launching a new product; brewed ginger ale with a low alcohol content. The brewer plans to spend $4 million promoting this product this year, which is expected to expand its sales of this product to $11 million this year and $8 million next year. They do expect there will be loss of sales of $3 million this year and next year in their other products as customers switch to drinking the new ginger ale. The gross profit margin for the new ginger ale is 40%, the gross profit margin of all of the brewer's other products is 30%, and the brewer's marginal corporate tax rate is 35%. What are incremental earnings arising from the promotional campaign this year?

A. $0.84million

B. $1.40million

C. $ 4.40million

D. $1.56million

Reference no: EM132064090

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