Mysportswear.com(an Internet sports merchandise retailer) is considering a one year deal with Major League Baseball (MLB) to drive traffic to its site.In this one year deal, Mysportswear will make an upfront payment of $10million to MLBin exchange for being named an official retail partner.Inaddition,Mysportswearwill makeasecondupfrontpaymentthataveragesoutto $15,000aday worthofbanner advertising on MLB's site.In return, Mysportswearwillbe featuredon40%ofthe40millionperdaypageviewsattheMLBsite.Basedonindustry estimates, Mysportswear believes that 1 in 300 views generated by MLB will result in a visit to its own website during the year of the deal. Mysportswear's own experience has been that about 1.5% of visitors to its site actually buy merchandise. While typical retention rates for Mysportswear'scustomersis 85%fromyeartoyear,managementwasconcernedthat customers generated through the MLB deal would only have a loyalty rate of 65% from year to year.Typical customers of Mysportswear buy $75 worth of merchandise per year. Purchases at Mysportswear generate gross margins of 37%.Assume cost of capital is 10%.

a)What is the net lifetime value (taking acquisition costs into account) of a singlecustomer with this deal?

b)What is the overall value of this deal (i.e. scaled up bythe total number of customers)?

c)What if the MLB generated customers have the typical85% loyalty rate insteadof 65% as expected above)?Recalculate your answers to a) and b) and brieflydiscuss.