Incremental earnings from advertising synergies Bangers, Inc is a start up manufacturer of Ausralian- style frozen veggie pies located in San Antonio, Texas The company is five years old and recently installed the manufacturing capacity to quadruple its unit sales. To jump start the demand for its products, the companies founders have have hired a local advertising firm to create a series of ads for its meat pies . The ads will cost the firm $450,000 to run for one year. Bangers management hopes that the advertising will produce annual sales of 2 million for its meat pies. Moreover the firms management expects that sales of its veggie pies will increase by 100,000 next year as a result of the company name recognition derived from the meat pie campaign. If Bangers operating profits per dollar of new sales revenue are 60 percent and the firm faces a 35 percent tax bracket what is the incremental operating profit the firm can expect to earn from the ad campaign? Does the decision to place the ad look good from the perspective of the anticipated profits?
The incremental operating profit the firm can earn from the ad campaign for year 1 is round to nearest dollar
The Incremental operating profit the firm can expect to earn from the ad campaign for year 2 is round to nearest dollar
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The decision to place the ad appears to be an acceptable or unacceptable ? project since the year 1 and year 2 cash flows are significantly less or greater than the $450,000 initial outlay for taking the project
The incremental operating profit the firm