Support SUPERTEL, a new Telecommunication company, in calculating the Lifetime V
ID: 2533125 • Letter: S
Question
Support SUPERTEL, a new Telecommunication company, in calculating the Lifetime Value per customer based on the following assumptions: Perform the necessary calculations (A THROUGH K NEEDS TO BE CALCULATED):
Year 1
Year 2
Year 3
Year 4
Year 5
Revenue
A Customers
2,000
B Retention rate
30 %
40 %
55 %
65 %
70 %
C Average yearly sales
$250
$250
$250
$250
$250
D Total revenue
Costs
E Cost percentage
50 %
50 %
50 %
50 %
50 %
F Total costs
Profits
G Gross profit
H Discount rate
1
1.15
I NPV profit
J Cumulative NPV profit
K Lifetime value (NPV)
Year 1
Year 2
Year 3
Year 4
Year 5
Revenue
A Customers
2,000
B Retention rate
30 %
40 %
55 %
65 %
70 %
C Average yearly sales
$250
$250
$250
$250
$250
D Total revenue
Costs
E Cost percentage
50 %
50 %
50 %
50 %
50 %
F Total costs
Profits
G Gross profit
H Discount rate
1
1.15
I NPV profit
J Cumulative NPV profit
K Lifetime value (NPV)
Explanation / Answer
Ans Year 1 Year 2 Year 3 Year 4 Year 5
a. Customer at Y0 2000
b. Retention Rate 30 40 55 65 70
c. Customer Retained 600 240 132 86 60
(2000*30%) (600*40%) (240*55) (132*65%) (86*70%)
d. Revenue Per
Customer $250 $250 $250 $250 $250
e. Revenues $150000 $60000 $33000 $21500 $15000
(e=c*d)
f. Cost Percentage 50% 50% 50% 50% 50%
g. Cost Incurred $75000 $30000 $16500 $10750 $7500
(g=e*f)
h.Gross Profit $ 75000 $30000 $16500 $10750 $7500
(h=e-g)
i. Discount Rate 1 1.15 ---- ---- -----
j. PV Factor 1/1.15 1/(1.15)^2 1/(1.15)^3 1/(1.15)^4
k. Pv Discounting `1 0.869 0.756 0.658 0.572
l.Npv Profit $75000 $ 26070 $12474 $7074 $4290
(l=h*k)
m. Cumulative
Net Profit $75000 $101070 $113544 $120618 $124908
(75000+26070) (101070+12474) (113544+7074) (120618+4290)
o.Lifetime Value $75000 $26070 $12474 $7074 $4290
(NPV)
Notes : 1. In the given case discounting is done by taking 15% rate as evident from Point H which Shows appreciation by 15 percent from 1 to 1.15 . Hence discounting is done of profits by taking 15 percent discount rate.
2. In the given case lifetime value as per point k in the question is equal to NPV profit in Point I
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