A Midwest based company is planning a geographical expansion. It has engaged you, as a consultant, to help them do a complicated analytical work.

Lets assume that the total target market in your area of interest is $1,000,000 prospects. The market is growing at the rate of 10% per year.

Currently, the awareness level of your company is 10% in this geographical area.

Your marketing department has identified the following customer acquisition transitional phases (to move a prospect to become a customer):

* Unaware to Aware

* Aware to Interested

* Interested to Trial

* Trial to Purchase

During each of these phases the attrition rate is 30%.

The customer retention phase consists of the following phases:

* Uncertainty

* Affinity

* Attachment

The PV of the total budget for all customer acquisition phases is $1,700,000.

The PV of the total customer retention phase is $1,000,000.

On average, a customer stays with your firm:

* for 5 years

* purchases your product 24 times per year

* spends $25 for each purchase (assume that there is no significant inflation)

The profit derived from each purchase is $15.

The companys cost of capital is 10%.

Would this be a profitable expansion?