Find out the customer lifetime value using the following information and a discount rate of 14%.
Average Annual Sales = $55,000 (treat the average sales as annuity)
Average Profit Margin = 7%
Expected Lifetime in Years = 10
A)$3,850
B)$55,000
C)$20,082
D)$54,082
E)Do not have enough information to compute

Question

Quizplus · Accepted Answer

The customer lifetime value (CLV) can be calculated using the formula for the present value of an annuity: CLV = (Average Annual Sales * Profit Margin) * [(1 - (1 + r)^-n) / r], where r is the discount rate and n is the number of years. Here, CLV = ($55,000 * 0.07) * [(1 - (1 + 0.14)^-10) / 0.14] = $20,082.

Find Out the Customer Lifetime Value Using the Following Information