QUESTION $1[41$ Marks$]$

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 R$1$ Million indicated that the sales of James clothing will amount to R$500$ 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 R$255$ 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 R$25$ Million and R$100$ 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 R$75000$ per month to be paid in arrears.

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$`$s Management Instructions:

$$Capital budget should be from column A to G$.$ Merge and center row $1,$ column A$-$ G and type in $$Capital Budget$$ and bold the words. Prepare the tax calculation on a separate worksheet and only include the final tax amounts in the Capital Budget.

$$Add a notes area to the sheets on column $$i$$ where you enter sales and costs of sale percentage increases, exchange rates, tax percentage, inflation, TV advertisements, to use as reference when calculating amounts in your capital budget.

$$Make use of formulas, cell reference and absolute cell referencing when preparing the capital budget and tax calculation. The notes area in column $$i$$ should be used as cell reference in your capital budgeting.

$$Include the Normal view and Formula view in separate sheets before converting your assignment to PDF as per the assessment instructions.

Mark allocation:

Net Present Value

$$Normal view $(14$ Marks$)$

$$Formula view $(10$ Marks$)$

Tax calculation

$$Normal view $(8$ Marks$)$

$$Formula view $(8$ Marks$)$

Excel instructions

$$Merge and center row $1$ and bolding the words $$Capital budget$(1$ Mark$)$