Answer Happy

Current System- Please first fill the first table based on the
numbers and assumptions indicated above.
If the company switches to the new system, based on preliminary
tests with improved targeting, it is estimated that with the new
system, retention rates will increase from 50 to 52 per cent in the
first year, increasing by five per cent per year. It is estimated
that in year 1 spending per annum will increase from 100 dollars
per annum to 110 per annum, increasing by the same percentages as
the current example. The discount is expected to follow the same
inflation trend. Then, use the information to fill the second
table.
Table 1. Current System (2 pts) Year 2 Year 2 Year 3 Year 4 Year 5 A Year 1 100,000 50% 100 B 56% 52% 110 54% 120 58% 130 58% 140 130 C D Current System Measures Subscribers Retention rate Spending per annum Total spending Net profit at 20% margin Discount rate NPV Contribution Cumulative NPV Contribution Lifetime value at NPV E F 1 0.92 0.9 0.88 0.86 0.84 G H Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Table 2. New system (2,5 pts) Current System Measures A Subscribers B Retention rate с Spending per annum D Total spending E Net profit at 20% margin F Discount rate G NPV Contribution Cumulative NPV H Contribution Lifetime value at NPV Increase in NPV for new system Return on Investment at 50K dellars Return on Investment at 100K dollars 1-1