Queen, one of the directors of Queen Ltd. (Queen), worked in the clothing industry in the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Queen, one of the directors of Queen Ltd. ("Queen"), worked in the clothing industry in the USA for a period of 10 years and has built strong relations with some of the large international fashion outlets. During her recent visit to the US, she met one of the directors, Mr. James of a large international fashion outlet "James". During their meeting, both directors are of the opinion that it will be a good idea for James to retail clothing through a South African outlet for a period of 5 years as this will give them an indication of whether it will be feasible to subsequently open James's outlets in South Africa. Queen saw this as an opportunity and suggested that James consider retailing his clothing line in Queen's stores since Queen has years of experience as a clothing retailer and is quite in tune with the South African market. Queen and James agreed in principle to the arrangement as per the contract below: Q & J PRINCIPAL AGREEMENT 1. Queen will pay James a once of initiation fee of $15 Million for an exclusive right to sell James's clothing line. Queen expects to pay this amount after the first year of sales. 2. Research conducted to the value of R1 Million indicated that the sales of James clothing will amount to R500 Million in 2024 and is expected to increase by 7% annually thereafter for the remainder of the period. 3. James's clothing line purchases by Queen will amount to R255 Million in 2024 and will escalate by 5% annually thereafter. 4. Queen will have to incur all costs related to marketing and refurbishment of stores to create a market for James in South Africa. 5. A once-off marketing costs and store refurbishment to the value of R25 Million and R100 Million, respectively, will need to be incurred by Queen upfront. 6. Queen is expected to incur costs related to print media to the value of R75 000 per month to be paid in arrears. 7. Queen is expected to incur costs related to the broadcast of 100 television advertisements per year, with each advertisement worth R50 000. 8. The above repeat costs are expected to increase by an inflation rate of circa 6% per year thereafter. 9. Working capital requirements are expected to amount to 12% of sales per year and are incurred at the beginning of each year. 10. The once-off refurbishment costs will qualify for improvements and will be depreciated over 5 years. SARS will permit a 3-year allowance on the store license. The TV ads and printing media will receive a full deduction. The marginal tax rate is 27%. 11. The tax department provided you with the tax framework to calculate the taxable amount: Sales Cost of sales Television ads Printing media XXX (xxx) (xxx ) (xxx) Refurbishment (xxx) Store license (xxx) Taxable amount xxx Tax@ 27% XXX 12. The Weighted average cost of capital is 16% and the Exchange rate is 1USD:R12,77 Required: Prepare a capital budget for the proposed exclusive clothing line deal with James for Queen's Management to quantitatively assess the feasibility of the deal. Queen, one of the directors of Queen Ltd. ("Queen"), worked in the clothing industry in the USA for a period of 10 years and has built strong relations with some of the large international fashion outlets. During her recent visit to the US, she met one of the directors, Mr. James of a large international fashion outlet "James". During their meeting, both directors are of the opinion that it will be a good idea for James to retail clothing through a South African outlet for a period of 5 years as this will give them an indication of whether it will be feasible to subsequently open James's outlets in South Africa. Queen saw this as an opportunity and suggested that James consider retailing his clothing line in Queen's stores since Queen has years of experience as a clothing retailer and is quite in tune with the South African market. Queen and James agreed in principle to the arrangement as per the contract below: Q & J PRINCIPAL AGREEMENT 1. Queen will pay James a once of initiation fee of $15 Million for an exclusive right to sell James's clothing line. Queen expects to pay this amount after the first year of sales. 2. Research conducted to the value of R1 Million indicated that the sales of James clothing will amount to R500 Million in 2024 and is expected to increase by 7% annually thereafter for the remainder of the period. 3. James's clothing line purchases by Queen will amount to R255 Million in 2024 and will escalate by 5% annually thereafter. 4. Queen will have to incur all costs related to marketing and refurbishment of stores to create a market for James in South Africa. 5. A once-off marketing costs and store refurbishment to the value of R25 Million and R100 Million, respectively, will need to be incurred by Queen upfront. 6. Queen is expected to incur costs related to print media to the value of R75 000 per month to be paid in arrears. 7. Queen is expected to incur costs related to the broadcast of 100 television advertisements per year, with each advertisement worth R50 000. 8. The above repeat costs are expected to increase by an inflation rate of circa 6% per year thereafter. 9. Working capital requirements are expected to amount to 12% of sales per year and are incurred at the beginning of each year. 10. The once-off refurbishment costs will qualify for improvements and will be depreciated over 5 years. SARS will permit a 3-year allowance on the store license. The TV ads and printing media will receive a full deduction. The marginal tax rate is 27%. 11. The tax department provided you with the tax framework to calculate the taxable amount: Sales Cost of sales Television ads Printing media XXX (xxx) (xxx ) (xxx) Refurbishment (xxx) Store license (xxx) Taxable amount xxx Tax@ 27% XXX 12. The Weighted average cost of capital is 16% and the Exchange rate is 1USD:R12,77 Required: Prepare a capital budget for the proposed exclusive clothing line deal with James for Queen's Management to quantitatively assess the feasibility of the deal.
Expert Answer:
Answer rating: 100% (QA)
A Certainly The agreement between Queen Ltd and Jamess fashion outlet is a comprehensive and strategic partnership aimed at expanding Jamess market pr... View the full answer
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Posted Date:
Students also viewed these corporate finance questions
-
What is the Porter's five forces of Commercial Bank of Qatar with Explanation for each point? What is the vision, mission and goals for Commercial Bank of Qatar with explain each of them? What is the...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
Determine the range of the 2x function y = 3 sec 3
-
Draw an electron-dot structure for Acetonitrile, C2H3N, which contains a carbon-nitrogen triple bond. How many electrons does the nitrogen atom have in its outer shell? How many are bonding, and how...
-
If A, B, and C are n ( n symmetric matrices, prove the following: (a) A is congruent to A? (b) If B is congruent to A, then A is congruent to B? (c) If C is congruent to B and B is congruent to A,...
-
Suppose two electrons move on parallel, closely spaced paths in the \(+z\) direction, each with velocity \(\vec{v}\) in the Earth reference frame. Discuss all forces exerted on the electrons.
-
Wayne Company makes two types of circuit boards. One is a high-caliber board designed to accomplish the most demanding tasks; the other is a low-caliber board designed to provide limited service at...
-
1 What is HRM 2 What is Training and Developmnt 3 What is Recruitment 4 What is Selection 5 What is HRP 6 What is Job Analysis 7 What is a Career Planning and Development 8 What is Job-Description 9...
-
Elizabeth Burke has asked you to do some preliminary analysis of the data in the Performance Lawn Equipment database. First, she would like you to edit the worksheets Dealer Satisfaction and End-...
-
View the selected video. https://www.youtube.com/watch?v=K731qicwYcY&list=PLLxDwKxHx1yKC2UoFwgiUAoZyrqYiDsGB Reflect about what you saw then join a discussion about it. For full credit you must...
-
Coca-Cola hired a creative director PepsiCo tried a new bottle design. Your Task. Identify the sentence fault (fragment, run-on sentence, comma splice). Then revise to remedy the fault.
-
In the beverage industry, the latest sales declines are astonishing. But not surprising. Your Task. Identify the sentence fault (fragment, run-on sentence, comma splice). Then revise to remedy the...
-
Which sentence is more emphatic? Why? a. For many reasons hamburgers are definitely American. b. Hot, fast, and affordable hamburgers are a uniquely American triumph. Your Task. For each of the...
-
Calorie-counting Americans are backing away from sugary soda, but they are also fleeing diet soda. Your Task. For each of the above numbered sentences, select the letter that identifies its type: a....
-
Although PepsiCo signed Beyonc to endorse its soft drinks. Sales continued to plummet. Your Task. Identify the sentence fault (fragment, run-on sentence, comma splice). Then revise to remedy the...
-
(logic) You are given three labeled boxes: two are empty, onecontains money, but you don't know which one. The labels on boxes 1 and 2 read, "This box is empty"; the label on box 3 reads "The money...
-
Outline a general process applicable to most control situations. Using this, explain how you would develop a system to control home delivery staff at a local pizza shop.
-
Financial reporting classifies derivatives as (a) speculative investments, (b) fair value hedges, or (c) cash flow hedges. However, firms revalue all derivatives to market value each period...
-
Identify three economic factors that will drive a firms price-earnings ratio to decrease over time. Identify three accounting factors that will drive a firms price-earnings ratio down in a given...
-
Exhibit 13.6 presents selected hypothetical data from projected financial statements for Steak 'n Shake for Year +1 to Year +11. The amounts for Year +11 reflect a long-term growth assumption of 3%....
-
An atom loses an electron to another atom. Is this an example of a physical or chemical change? (a) chemical change involving the formation of ions (b) physical change involving the formation of ions...
-
Aluminum ions carry a 3+ charge, and chloride ions carry a 1- charge. What is the chemical formula for the ionic compound aluminum chloride? (a) Al 3 Cl (b) AlCl 3 (c) Al 3 Cl 3 (d) AlCl
-
Why are ores so valuable? (a) They are sources of naturally occurring gold. (b) Metals can be efficiently extracted from them. (c) They tend to occur in scenic mountainous regions. (d) They hold many...
Study smarter with the SolutionInn App