(Identifying incremental earnings from advertising synergies) Fastfoot shoes currently sells £1 million worth of products to a major sports warehouse retailer delivering an operating profit of 35 percent for Fastfoot. The retailer has offered a promotional deal to Fastfoot that would see projected (but not guaranteed) additional sales of

£300,000 for Fastfoot. To achieve this, the retailer wants to reduce Fastfoot’s margin.

Fastfoot has calculated that their operating profit on their entire sales to the retailer will fall to 30 percent. Fastfoot pays corporation tax at 22 percent. Is the deal worth doing from a cash flow perspective? What are the two main risks faced by Fastfoot?