1. A private equity firm is evaluating a SaaS company, TechEase, for potential investment. The following financial data for TechEase is available for the fiscal year 2023:

• Annual Revenue per Account (ARPA): $8,000
• Gross Margin: 70%
• Customer Retention Rate: 85%
• Customer Acquisition Cost (CAC): $3,000

The private equity analyst is tasked with calculating the Lifetime Value (LTV) of a customer and the LTV/CAC ratio to assess the company’s financial health and potential for growth.

Which of the following statements accurately calculates the LTV and LTV/CAC ratio for TechEase, and what does it signify about the company’s financial health?

A) LTV is $28,000 and LTV/CAC is 9.33, signifying that the company has a good balance, indicating efficient customer acquisition and healthy profitability.

B) LTV is $18,000 and LTV/CAC is 6, suggesting a balanced relationship but indicating room for optimizing customer value and acquisition strategies.

C) LTV is $9,800 and LTV/CAC is 3.27, showing that the company is maintaining a standard balance between customer value and acquisition cost, indicative of a stable financial position.

D) LTV is $37,336 and LTV/CAC is 12.45, indicating a strong balance between customer value and acquisition cost but suggesting a potential underinvestment in growth.

2. In relation to the construction of a financial model, when employing the “Percentage of Revenue/Cost” method, which of the following statements is most accurate?

A) This method is best suited for startups with unpredictable revenues since it offers flexibility in adjusting cost structures.

B) The method assumes that the relationship between certain expenses or revenues and the main driver remains constant, which may not always reflect real business dynamics.

C) It relies heavily on historical data, making it unsuitable for businesses undergoing rapid change or entering new markets.

D) This method is only used for assessing capital expenditures as a percentage of revenue.