Troista Mobile Accessories sells mobile apps on their Web site. If a customer spends on average, $12 per visit and visits the Web site 20 times each year, what is the average nondiscounted gross profit during a customer's lifetime? Given that Troista makes a margin of 60 percent on the average bill, with 25 percent of customers not returning each year.
A) $30
B) $75
C) $360
D) $576

Question

Quizplus · Accepted Answer

The average spend per visit is $12, and with 20 visits per year, the annual spend is $12 * 20 = $240. With a margin of 60%, the gross profit per year is $240 * 0.60 = $144. Given that 25% of customers do not return each year, the retention rate is 75% or 0.75. To find the lifetime value, we use the formula for the sum of a geometric series, which in this case is the annual gross profit divided by 1 minus the retention rate: $144 / (1 - 0.75) = $144 / 0.25 = $576.

Troista Mobile Accessories Sells Mobile Apps on Their Web Site