KEM Company has begun studying customer lifetime value for its customers and has prepared the information below for selected customers. For simplicity, management has assumed that for a given customer, the retention rate is the same every year until the customer departs. For Customer 4, costs (ct) were incurred to promote customer retention in years 1 and 2.

Required(a) Compute the customer lifetime value for each customer for the stated number of years.(b) Discuss the reasons for differences in customer lifetime value between Customers 1 and 2, Customers 1 and 3, Customers 1 and 4, and Customers 3 and 4.(c) Compute the customer lifetime value for Customers 1, 2, and 3 assuming that n is very large and the numbers in the table remain about the same each year.(d) How does information on a customer??s estimated lifetime value help a company manage its customer acquisition and loyalty programs?

CUSTOMERS 4 $1,000 $1,000 $1,000 $1,000 Initial acquisition cost n = number of years retained r= retention rate for each of the n years retained 3. 0.9 Cost of capital 0.1 0.1 0.1 0.1 M, = margin from customer in year ! $275 M $300 $275 $275 M2 275 300 275 275 M3 275 300 275 300 M4 275 275 300 275 275 300 M5 G = additional costs-to-serve and retain customer in year t $0 $0 $0 $50 25 0. 0.