The Importance Of Marketing Metrics

The ABC system allocates indirect costs based on each activity of the retail and business customers. This system shows that 20% of checks processed were from retail customers and 80% were from business customers.

Free Cash Flow = Sales Revenues – Operating Costs and Taxes – Required Investments in Operating Capital. Weighted Average Cost of Capital (WACC) is affected by market interest rates, market risk aversion, cost of debt, cost of equity, firm’s debt/equity mix, and firm’s business risk. Therefore, free cash flows and the weighted average cost of capital interact to determine a firm’s value by the following equation:

During 2010, management revised its estimate of the customer list economic life, and began assigning an amortization period of 15 years to newly acquired national customer lists. Amortization expense for the year ended December 31, 2010, was $3 million. To test the economic lives of the customer lists, the engagement team asked management what the reasoning was for the change in the assumed economic life this year. Management provided a memorandum that discussed the rationale for using the 25-year economic life to amortize the various customer lists, as well as the rationale for the current-year change in management’s estimate of the newly acquired national customer lists lives.

n. WACC has market interest rates and market risk aversion, firms debt/equity mix and firm’s business risk which all go to cost of debt and cost of equity which both areas end up at the value.

Actual costing is rarely used because managers can’t wait until the end of the year to obtain product costs. Information about product costs is needed as the year goes for planning, control, and decision making.

So in order for the company to make a smart decision, they would have to use the WACC (weighted average cost of capital) in order to determine which way they would go about raising that additional capital, whether it be equity (shares of stocks) or debt (a bond issue).

Cost of capital is what it will cost the firm, on the margin, today, to secure its financial resources for further growth.

WACC = cost of debt + cost of equity (weighted by the % of debt/equity in the capital stack)

8. Using the ABC data, compute the average contribution to profit per account for both retail and business customers. What business strategy would be a manager using the ABC cost system likely adopt? How does this result compare to your response to Requirement 1, Part E?

With the introduction of ABC, it now may be possible to determine customer profitability. Table 3 shows how the administrative and selling costs are assigned and re-assigned between various functions within the selling and marketing areas and to sub-activities in the selling and marketing areas. Table 4 provides a list of

company’s securities, both debt and equity. The WACC is important to calculate because it is a necessary

The acquisition cost and lifetime value are used to find the total amount of value that is derived from a customer over the customer’s complete lifetime with the business. Cost acquisition is also known as the CAC. We will measure that lifetime simply as the total revenue earned to date, and in this case our

Marriot use the Weighted Average Cost of Capital to estimate the cost of capital for the corporation as a whole and for each division, and the hurdle rate is updated annually.(WACC = (1-Tc) * (D/A) * R[D] + (E/A) * R[E])

The cost of capital for contract services is 7.59%. We can estimate the equity cost by using the numbers provided in the case and calculating the beta for each division. (Appendix 3)

The Weighted Average Cost of Capital (WACC) is the discount rate used in a Discounted Cash Flow (DCF) analysis to present value projected free cash flows and terminal value.