# Question: Bangers Inc is a start-up manufacturer of Australian-style

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## Description

Question:
Bangers Inc is a start-up manufacturer of Australian-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 company founders have hired a local advertising firm to create a series of ads for its new line of meat pies. The ads will cost the firm \$500,000 to run for one year. Bangers’ management hopes that the advertising will produce annual sales of \$1.9 million for its meat pies. Moreover, the firm’s management expects that sales of its veggie pies will increase by \$300,000 next year as a result of the company name recognition derived from the meat pie add campaigning.

If Banger’s operating profits per dollar of new sales revenue are 55 percent and the firm faces a 36 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 expect to earn from the ad campaign for year 1 is \$?______

The incremental operating profit the firm can expect to earn from the ad campaign for year 2 is \$________?

The decision to place the add appears to be an unacceptable or acceptable project since the year 1 and year 2 cash flows are significantly less or greater than the \$500,000 initial outlay for taking the project.

Operating profit in the first year = \$1.90m * 0.55 * 0.64 = \$668800

Operating profit in the second year = (\$1.90m + \$0.30m) * 0.55 * 0.64 = \$774400

The incremental expected operationg profit the firm can expect to earn \$668800 from the ad campaign.

Yes, the decision to place the ad look good from the perspective of the anticipated profits.

The incremental operating profit, the firm can expect to earn from the ad campaign for year 1 is \$668800.

The incremental operating profit the firm can expect to earn from the ad campaign for year 2 is \$774400.

The decision to place the add appears to be an acceptable project since the year 1 and year 2 cash flows are significantly greater than the \$500,000 initial outlay for taking the project.

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