Incremental earnings associated with advertising campaign

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Reference no: EM131576552

Basic Point plc ("the Company") is considering the launch of an advertising campaign for its latest product, the learning thermostat. The Company plans to spend euro 5 million on TV, radio, online and print advertising this year for the campaign. The advertising is expected to boost sales of the learning thermostat by euro 9 million this year and by euro 7 million next year. In addition, the Company expects that new consumers who buy the learning thermostat will be more likely to try the Companys other products. As a result, sales of other products are expected to rise by euro 2 million each year.

Basic Points gross profit margin for the thermostat is 35%, and its gross profit margin averages 25% for all other products. The Companys marginal corporate tax rate is 35% both this year and next year. What are the incremental earnings associated with the advertising campaign?

Reference no: EM131576552

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