Bangers, Inc. is a start-up manufacturer of Australian-stylefrozen veggie pies located in San Antonio, Texas. The company isfive years old and recently installed the manufacturing capacity toquadruple its unit sales. To jump start the demand for itsproducts, the company founders have hired a local advertising firmto create a series of ads for its new line of meat pies. The adswill cost the firm $350,000 to run for one year. Bangers’management hopes that the advertising will produce annual sales of$2 million for its meat pies. Moreover, the firm’s managementexpects that sales of its veggie pies will increase by $250,000next year as a result of the company name recognition derived fromthe meat pie ad campaign. If Bangers’ operating profits per dollarof new sales revenue are 40 percent and the firm faces a 37 percenttax bracket, what is the incremental operating profit the firm canexpect to earn from the ad campaign? Does the decision to placethe ad look good from the perspective of the anticipatedprofits?
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