Essay Home Alarm

The lifetime value of a typical customer in each segment when the discount rate is 15%.

6. How does the current reimbursement level of $140,000 per case affect a decision to use or not use marginal cost pricing? Does the amount of excess capacity affect the decision? Why?

The fixed cost is assumed that Larry has discovered the other fixed cost incurred. The total investment is $800,000. The worst case scenario assumes that Larry got a total line of credit from the bank in the amount of $400,000 and invested $400,000 from other source. The Notes payable – short term and the long-term debt is (11.8 + 3.7) = 15.5 % from Table F in the handout. The Loan interest and payment per year is ($400,000 * 0.155)= $62,000. The Income data from Table F indicates that there is a 0.4% of all other expenses net out of the total sales which equals to $109,908 (5,700,666 gallons * $4.82 *0.4%) .

One assumption that should be clearly analyzed is that the collection period is of 30 days net. Not always customers have the ability and willingness to pay off their debts in 30 days, some may take more time, and some could incur in bad debt.

5. An analysis of the individual customer accounts suggest that TFC’s current pricing model is ineffective. They are undercharging an alarming number of their customers thereby reducing their overall profitability. Based on this information, managers will hopefully elect to implement the services based pricing model so that customers are charged based on the services they are actually consuming. Ideally, changing the current pricing model will resolve the issue of customers reducing profit by 140% and 60% (Exhibit 8, numbers 3 and 4). If there are still profit draining customers, management should revisit and assess accordingly, either further increasing fees to those customers so their contribution is positive, or perhaps dropping these customers to increase overall profitability.

4. Now consider a second alternative for accumulating funds to buy the new billing system. In lieu of a lump sum investment, assume that five annual payments of $32,000 are made at the end of each year.

c) The present value of $500 to be received in one year when the opportunity cost rate is 8 percent (discounting):

A one-year insurance policy was purchased for $960 on July 1, 20-1. On December 31, 20-1, it had

a. How much would the payment be if rate of interest is 5% and you only financed the truck for 48 months?

After tax cost of debt = Cost of Debt * (1-t) = 6.79% (1-34%) = 4.48%

managed effectively in one way or another, that is $1.8 billion in merchandise. If half of these customers choose

The cost of implementation of the options: It is found in the survey that 20% customers had had repeat work. Considering 5% as redundant, the customer erosion could be as large as $4.37 million (Exhibit 2). Thus making the investment of $75000 is completely justified.

1. What is the expected customer lifetime value of a newly acquired customer? Use an annual discount rate of 10%.

A) Using historical recovery rates, what is the implied probability of default? What is the implied IRR?

First we need to get the present value of the annuity for the 1,500 semiannual PMTs at year 14