A TV satellite provider charges $42 a month for its basic service package. Its variable costs...

A TV satellite provider charges $42 a month for its basic service package. Its variable costs are $4 a month per account. The company spends $24 a year per account on marketing with an attrition rate of 1% a month. Assuming an annual discount rate of 5%, calculate the maximum amount that this company could spend to acquire a new customer and still provide a positive expected contribution.

Please show the work as I’m trying to learn the concept

Expert Solution

Here we need to first calculate the CAC or customer acquisition cost which is Lifetime value of customer to the company. Usually CAC or customer acquisition cost is Sales and Marketing cost/ number of customers but we don't have number of customers details we'll go by below method,

Since, 1% is the churn or retention rate that means 12% a yaer and on an average a customer remains with the company for 8 years.

CAC= 42*12*8 i.e monthly price multiplied with months in year he'll use the subcrition * No of years expected

$4032 is the Lifetime value of customer to company.

Now, we need to find out the profit margin for the customer. Based on given details, 42-4-2-5% Discount Rate.

Since, Fixed cost is not mentioned I'll assume it to be $20.

So the profit margin is 42-4-2-2-20=$14 and margin is 34%

COGS or Cost of Goods Sold is $28 and company cannot sell below this margin without incurring losses.

jeff jeffy answered 1 year ago

An Internet service provider has three different subscription packages for its customers: Package A: $9.95 per...

An Internet service provider has three different subscription packages for its customers: Package A: $9.95 per month 10 hours of access are provided. Additional hours are $2.00 per hour. Package B: $14.95 per month 20 hours of access are provided. Additional hours are $1.00 per hour. Package C: $19.95 per month unlimited access is provided. Write a MATLAB script to calculates a customer’s monthly bill. It should ask which package the customer has purchased and how many hours were used....

A delivery service company in Kuala Lumpur guarantees a refund of all charges if a package...

A delivery service company in Kuala Lumpur guarantees a refund of all charges if a package it is delivering does not arrive at its destination by the specified time. It is known from past data that a proportion p of the packages mailed through this company does not arrive at its destination by the specified time. given,mean=0.0117 standard deviation=0.0034 n=1000 (iii) What is the sampling distribution of ? Justify your answer. (iv) There is a 95% chance that falls in...

OA company recently hired a payroll service provider to process its payroll-that service provider has essentially...

OA company recently hired a payroll service provider to process its payroll-that service provider has essentially taken over the payroll function, and payroll represents OA's largest expense. Comment on the following statement: OA's auditors should make certain that the payroll service provider's most recent financial statements are audited, and that the related audit report includes no indication of a weakness in internal control related to processing its own payroll.

if fixed costs are $728,400, the unit selling price is $42, and the unit variable costs...

if fixed costs are $728,400, the unit selling price is $42, and the unit variable costs are $27, what is the break-even sales (units) if target profits are increased by $330,930? A) 26,498 B) 22,062 C) 48,560 D) 70,622 if the contribution margin ratio for 4 Zsons Company is 30%, sales were $843,000 and fixed costs were $113,295, what was the income from operations? A) 252,900 B) 139,605 C) 158,200 D) 377,650 Period Costs: A) are expensed as costs are...

BugKillers provides a quarterly pest control service for $106 a quarter. Its variable costs per service...

BugKillers provides a quarterly pest control service for $106 a quarter. Its variable costs per service call are $17. Customers can cancel the service at any time, and the firm has a quarterly attrition rate of 2%. Marketing spends $40 per year on customer retention. If the annual discount rate is 13%, what is the CLV of an existing customer? Please post the Excel formulas

A friend or yours is considering two cell phone service providers. Provider A charges $100 per...

A friend of yours is considering two cell phone service providers. Provider A charges $100 per month for the service regardless of the number of phone calls made. Provider B does not have a fixed service ree but instead charges $1 per minute for calls. Your friend's monthly demand for minutes or calling is given by the equation p-120-30P, where P is the price of a minute. With Provider A, the cost of an extra minute is 5 _______ .with...

C# assignment 5: Shipping Charges A large Internet merchandise provider determines its shipping charges based on...

C# assignment 5: Shipping Charges A large Internet merchandise provider determines its shipping charges based on the number of items purchased. As the number increases, the shipping charges proportionally decrease. This is done to encour- age more purchases. If a single item is purchased, the shipping charge is $2.99. When customers purchase between 2 and 5 items, they are charged the initial $2.99 for the first item and then $1.99 per item for the remaining items. For customers who purchase...

Sprint charges its current customers an average of $55 per month. It costs Sprint $4.50 per...

Sprint charges its current customers an average of $55 per month. It costs Sprint $4.50 per month to serve these customers. It also spends $3 per customer per month to keep these customers loyal. Over the last few years Sprint has been able to retain 80% of its customers. Assume a discount rate of 5% annually. Calculate Sprint’s customer lifetime value of its current customers. [2] Sprint is willing to spend $320M in advertising to 10 million viewers, and $375M...

ANZflix, a media-services provider, charges subscribers $13.49 per month. To attract more customers, the Management and...

ANZflix, a media-services provider, charges subscribers $13.49 per month. To attract more customers, the Management and Product Planning team spents an estimated cost at $52,000 to produce and deploy products across all user interfaces. Also, the Software Engineering team maintains all systems and infrastructure to ensure that members can continue to sign up and watch ANZflix. This maintainance costs ANZflix $56,000 per month. ANZflix uses a server in Taiwan to deliver streaming videos to its subscribers and the facility runs...

Q3 A package service company offers overnight package delivery to its business cus- tomers. It has...

Q3 A package service company offers overnight package delivery to its business cus- tomers. It has recently decided to expand its facilities to better satisfy current and pro- jected demand. Current volume totals two million packages per week at a price of $12 each, and average variable costs are constant at all output levels. Fixed costs are $3 million per week, and profit contribution averages one-third of revenues on each delivery (profit contribution=(p–AV C)Q). After completion of the expansion project,...

Question