In the Equation to Calculate the Economic Value of a Customer

question 56

Multiple Choice

In the equation to calculate the economic value of a customer, V = R × F × M / D, how is the value for F estimated?

• A) It is estimated to be the total number of purchases the customer has made.
• B) It is estimated to be the number of visits of the customer without actually spending on an item.
• C) It is estimated to be the purchase frequency per year.
• D) It is estimated to be the number of customers defecting per year.

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Definitions:

Profitability Index

A financial metric that measures the return on investment for a project or investment by dividing the present value of future cash flows by the initial investment.

Investment Proposals

Formal suggestions or plans put forward for consideration or discussion, especially regarding potential business investments.

Simple Rate Of Return

The rate of return computed by dividing a project’s annual incremental net operating income by the initial investment required.

Salvage Value

The estimated residual value of an asset at the end of its useful life, representing what it could be sold for or scrapped.