Q1) Alar is a manger at Shoeless Joe's Sports Bar and Grill and was approached by a hockey team asking for sponsorship. Sponsorship would mean purchasing 18 jerseys for the team BUT would see the team visit the restaurant on a regular basis. The EXPECTED RETURNS for the restaurant from these visits would be Gross Sales of $2,000 per year for an expected five years. (We can also assume the restaurants profit margin on food/beer sales is 40%, so USE NET PROFIT of $800 per year for all calculations). Further, the jerseys would have the Shoeless Joe's logo and act as advertising (a goodwill function in accounting), BUT this is not considered in the calculations. Alar remembers something about CLTV in college and wants to calculate the CLTV using different methods on ONLY the future expected business from the team (ignore advertising or goodwill from the jerseys). Determine: a a) The CLTV of the team for five years using the Easy Method. b) The CLTV of the team using the Simple Formula, with a churn of 20% c) The CLTV of the team using the Traditional Formula with a 20% churn and a cost of money (interest rate) of 10% p.a. d) The CLTV of the team using DCF over five years at 10% compounded annually, assuming net profit per year $800 at the end of every year (use as PMT). e) Given the cost of the jerseys would be $360 AND the CLTV of the four different methods (you calculated), what action should Alar take and why? Q1) Alar is a manger at Shoeless Joe's Sports Bar and Grill and was approached by a hockey team asking for sponsorship. Sponsorship would mean purchasing 18 jerseys for the team BUT would see the team visit the restaurant on a regular basis. The EXPECTED RETURNS for the restaurant from these visits would be Gross Sales of $2,000 per year for an expected five years. (We can also assume the restaurants profit margin on food/beer sales is 40%, so USE NET PROFIT of $800 per year for all calculations). Further, the jerseys would have the Shoeless Joe's logo and act as advertising (a goodwill function in accounting), BUT this is not considered in the calculations. Alar remembers something about CLTV in college and wants to calculate the CLTV using different methods on ONLY the future expected business from the team (ignore advertising or goodwill from the jerseys). Determine: a a) The CLTV of the team for five years using the Easy Method. b) The CLTV of the team using the Simple Formula, with a churn of 20% c) The CLTV of the team using the Traditional Formula with a 20% churn and a cost of money (interest rate) of 10% p.a. d) The CLTV of the team using DCF over five years at 10% compounded annually, assuming net profit per year $800 at the end of every year (use as PMT). e) Given the cost of the jerseys would be $360 AND the CLTV of the four different methods (you calculated), what action should Alar take and why
