Answer:
Check Explanation.
Explanation:
Note that the amount are in millions(dollar).
Year one: the sales of Mini Mochi Munch = $ 8.8 million = 8.8, sales of other products = $ 1.7 million. Hence, the gross profit = (8.8 × 38%) + (8.8 × 23%) = 5.368.
The selling, general and administrative expenses = 4.9 and the depreciation is zero.
Then, the EBIT = the gross profit -selling, general and administrative expenses - Depreciation.
EBIT = 5.368 - 4.9 - 0 = 0.468.
Less income tax at 38% = 0.17784.
incremental earnings= EBIT - Less income tax at 38%.
incremental earnings = 0.468 - 0.17784.
Year two: the sales of Mini Mochi Munch = $ 6.8 million = 6.8, sales of other products = $ 1.7 million. Hence, the gross profit = (6.8 × 38%) + (6.8 × 23%) = 4.148.
The selling, general and administrative expenses = 0, and the depreciation is zero(0).
Then, the EBIT = the gross profit -selling, general and administrative expenses - Depreciation.
EBIT = 4.148 - 4.9 - 0 = −0.752.
Less income tax at 38% = −0.28576.
incremental earnings= EBIT - Less income tax at 38%.
incremental earnings = −0.752 - −0.28576 = −1.03776.
