Tire manufacturer Firebridge sells tires to retail firm A.Average annual sales for firm A is $55,000.Average profit margin is 15%.The expected lifetime is 10 years.Using a discount rate of 10 percent,calculate the Customer Lifetime Value of firm A and choose the closest answer below:

Question

Quizplus · Accepted Answer

Step 1: Calculate the annual profit for firm A
Profit = 55,000 * 0.15 = $8,250
Step 2: Calculate the present value of the annuity using the formula
PV = C * (1 - (1 + r)^-n) / r
where C is the annual profit, r is the discount rate, and n is the expected lifetime in years.
PV = 8,250 * (1 - (1 + 0.1)^-10) / 0.1 = $50,693
Therefore, the closest answer is B) $50,693.

Tire Manufacturer Firebridge Sells Tires to Retail Firm A