Assume that the profit per box of plain oatmeal is


It has been 15 years since Quaker launched its original two products. Quaker has found that customers are relatively brand loyal. Specifically, once a family begins buying oatmeal, they keep purchasing boxes for a number of years (i.e., they become "purchasers"). The average "purchaser" family buys 27 boxes of oatmeal per year, and "non-purchaser" families buy zero boxes per year and never begin buying again. On average, each "purchaser" family has a 12.5%/year chance of stopping all oatmeal purchases, converting into a "non-purchaser" family. Assume that the profit per box of plain oatmeal is currently $0.50, the profit per box of Apples & Cinnamon is $0.30, and that purchasers buy twice as many Plain Oatmeal boxes as Apples & Cinnamon boxes each year. What is the lifetime value of a "purchaser"? (N.B.: you may assume that Quaker's cost of capital is 10% if you choose to use the discounted form of the LTVC. Use a five year horizon to calculate the lifetime value)

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Finance Basics: Assume that the profit per box of plain oatmeal is
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