Answer:
The budget for advertising for the next year will be $1 billion.
Explanation:
Based on the information given in the question, the advertising to sales ratio for GEICO based on its last year data is,
Advertising to sales = Advertising / Sales Revenue
Advertising to sales = 0.9 / 18 = 0.05 or 5%
The advertising to sales ratio for GEICO is much higher than the industry average. If GEICO continues to maintain this ratio for the next year, the budget for advertising will be,
Advertising budget = 20 * 5% = $1 billion
If it uses the industry average ratio, the budget will be,
Advertising budget = 20 * 0.2% = $0.04 billion
As GEICO is expected to maintain its own advertising to sales ratio, the correct answer for advertising budget us $1 billion