Give step-by-step solution with explanation and final answer:You are a marketing analyst at a FUBOTV, subscription-based streaming service. You are analyzing the value of a customer
named Alex over a

Question

Give step-by-step solution with explanation and final answer:You are a marketing analyst at a FUBOTV, subscription-based streaming service. You are analyzing the value of a customer
named Alex over a 4-year period. The company wants to estimate Alex's Customer Lifetime Value (CLV) using the
following formula:
cry, =y7 Hu
(+d)
= Where
0 CF, = net cash flow generated by the customer i at time t
oO T = time horizon for estimating the CLV
0d = discount rate
DATA:
Cash flow:
® Year 1: - $120
* Year 2:-$15
* Year 3: $70
* Year 4: $120
« Discount rate d = 10%

TASK:

1. Use the formula to calculate the CLV of Alex over the 4-year period.

2. Show your work for each year's discounted cash flow.

3. Sum the discounted values to get the total CLV (with the 10% discount.

4. If the discount rate increased to 15%, how would that affect the CLV? Recalculate and compare.
SUBMISSION:
Submit your Excel spreadsheet. It will feature formulas, results, and interpretation.

VIPSolutions · Accepted Answer

# Step-by-Step Solution: Calculating Customer Lifetime Value (V) for Alex

##1. **Formula Recap**

[
CLV = \sum_{=}^{T} \fracCF_{i}}{(1+d)^t}
\]

Where:
- $ CF_{i,t} $ = cash flow year $ t $
 $ d $ = discount rate
- $ T $ 4 yearshere, years 1 to 4)

---

## 2. **Given Data**

| Year | $ t $ | Cash Flow ($ CF_{i,t} $) |
|------|--------|-----------------------------|
| 1    | 1      | -$120                       |
| 2    | 2      | -$15                        |
| 3    | 3      | $70                         |
| 4    | 4      | $120                        |

- Discount Rate ($ d $): **10% (.10)**

---

## 3. **Discounted Cash Flow Calculation (10% discount rate)**

For each year:

$$
\text{Discounted CF} = \frac{CF_{i,t}}{(1+d)^t}
$$

### **Year 1 ($ t=1 $):**
$$
\frac{-120}{(1+.10)^1} = \frac{-120}{1.10} = -109.09
$$

### **Year 2 ($ t=2 $):**
$$
\frac{-15}{(1+.10)^2} = \frac{-15}{1.21} = -12.40
$$

### **Year 3 ($ t=3 $):**
$$
\frac{70}{(1+.10)^3} = \frac{70}{1.331} = 52.60
$$

### **Year 4 ($ t=4 $):**
$$
\frac{120}{(1+.10)^4} = \frac{120}{1.4641} = 81.96
$$

---

## 4. **Summing the Discounted Cash Flows**

$$
CLV = -109.09 + (-12.40) + 52.60 + 81.96
$$
$$
CLV = -109.09 - 12.40 + 52.60 + 81.96 = 12.97
$$

---

## 5. **If Discount Rate = 15% ($ d = .15 $)**

### **Year 1:**
$$
\frac{-120}{(1+.15)^1} = \frac{-120}{1.15} = -104.35
$$

### **Year 2:**
$$
\frac{-15}{(1.15)^2} = \frac{-15}{1.3225} = -11.34
$$

### **Year 3:**
$$
\frac{70}{(1.15)^3} = \frac{70}{1.5209} = 46.01
$$

### **Year 4:**
$$
\frac{120}{(1.15)^4} = \frac{120}{1.749} = 68.61
$$

### **Sum:**
$$
CLV = -104.35 - 11.34 + 46.01 + 68.61 = -104.35 - 11.34 + 46.01 + 68.61 = -115.69 + 114.62 = -1.07
$$

---

## 6. **Summary Table**

| Year | Cash Flow | Discounted CF (10%) | Discounted CF (15%) |
|------|-----------|---------------------|---------------------|
| 1    | -120      | -109.09             | -104.35             |
| 2    | -15       | -12.40              | -11.34              |
| 3    | 70        | 52.60               | 46.01               |
| 4    | 120       | 81.96               | 68.61               |
|**Total CLV**|   |**12.97**              |**-1.07**              |

---

## 7. **Interpretation**

- **At a 10% discount rate, Alex's CLV is **\$12.97**.**
- **At a 15% discount rate, Alex's CLV is **-\$1.07** (very close to break-even, slightly negative).**

**Increasing the discount rate decreases the CLV, reflecting a lower present value for future cash flows.**

---

### **Final Answers**

- **CLV (10% discount rate):** \$12.97
- **CLV (15% discount rate):** -\$1.07

---

If you need an Excel formula setup or calculations, let me know!

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