A large company has profiled its current customer database using over 150 characteristics including size, credit rating, frequency of purchase, value of purchases, speed of payment, etc. The resulting model predicts with significant accuracy the likelihood of new customers becoming loyal customers. The company has restructured its commission system to reward sales persons who sign up customers matching the computer profile. The bonus is based on the net present value of expected future purchases less a factor for estimated length of collection period. Which measure of shareholder wealth is this performance reward system most consistent with?

Question

Quizplus · Accepted Answer

The performance reward system is most consistent with Shareholder Value Analysis (SVA), which focuses on maximizing the value of the firm for its shareholders through the use of financial metrics such as net present value and future cash flows. The system rewards sales personnel who sign up customers matching the computer profile that predicts the likelihood of new customers becoming loyal customers. The bonus is based on the net present value of expected future purchases, which aligns with the SVA approach.

A Large Company Has Profiled Its Current Customer Database Using