Sam's Apparels is looking to partner with a local celebrity/inflencer to launch a new line of...

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Sam's Apparels is looking to partner with a local celebrity/inflencer to launch a new line of clothing. As per the partnership agreement, Sam's Apparel will pay the celebrity an upfront fee of $50,000, as well as 10% royalty on every dollar of sales under this new product line Please answer the following questions: 1. Calculate the NPV, Payback period and MOIC for this business case 2. Would you recommend Sam's Apparel to proceed with this partnership? 3. Would your recommendation change if the celebrity wants a higher fee ($75,000) but slightly lower royalty (7.5%) - why? Bonus pts - create a sensitivity analysis on the WACC and its impact to NPV (2 points) The product team came up with the following information to assist in your business case: Year 2 25,000 $ 27,500 $ 40.00% 40.00% 2.50% 2.50% 10% Sales Forecast COGS Additional OPEX Expense (% of Sales) Required WACC $ Year 1 Year 3 Year 4 32,000 $ 39.50% 2.75% 36,000 $ 38.50% 2.75% Year 5 38,500 38.50% 2.85% Sam's Apparels is looking to partner with a local celebrity/inflencer to launch a new line of clothing. As per the partnership agreement, Sam's Apparel will pay the celebrity an upfront fee of $50,000, as well as 10% royalty on every dollar of sales under this new product line Please answer the following questions: 1. Calculate the NPV, Payback period and MOIC for this business case 2. Would you recommend Sam's Apparel to proceed with this partnership? 3. Would your recommendation change if the celebrity wants a higher fee ($75,000) but slightly lower royalty (7.5%) - why? Bonus pts - create a sensitivity analysis on the WACC and its impact to NPV (2 points) The product team came up with the following information to assist in your business case: Year 2 25,000 $ 27,500 $ 40.00% 40.00% 2.50% 2.50% 10% Sales Forecast COGS Additional OPEX Expense (% of Sales) Required WACC $ Year 1 Year 3 Year 4 32,000 $ 39.50% 2.75% 36,000 $ 38.50% 2.75% Year 5 38,500 38.50% 2.85%

Answer rating: 100% (QA)

SOLUTION IN DETAILS To calculate the NPV we need to discount the future cash flows using the cost of capital WACC The WACC for Sams Apparel is 10 NPV ... View the full answer