Provide evidence of the financial viability of your pricing strategy. If you want to hand$-$write your

calculations, you can do so$.$ Remember to scan and add them in an Appendix to your case report. The

calculations are worth a large percentage of your grade, and they do not count towards the length of

your report $($not included in the $3$ page limit$).$ Some of the financial calculations you can do are

Break$-$even analysis $-$ number of months to cover acquisition costs $($$$370),$ with Monthly Margin

$=$ Monthly ARPU $($average revenue per unit$)-$ Monthly cost$-$to$-$serve

Lifetime Value Analysis $($LVA$)$ using the simplified formula given in Exhibit $11($page $19),$ where LTV $=$ M$/(1-$r$+$i$)-$ AC

where $M=$ margin one consumer generates in one year

$r=$ the annual retention rate: this in turn is calculated as $r=1-($monthly churn rate $*12)$;

monthly churn rate $($or drop$-$out rate$)$ with contract is $2\%$ or $0\mathrm{.}02,$ without a contract it is higher at $6\%$

or $0\mathrm{.}06$

$j=$ the interest rate $(assume5\%or0\mathrm{.}05)$

$AC=$ the acquisition cost per customer $($$$370,$ page $2)$

For example if ARPU is $$52($page $3)$ and monthly cost to serve a customer is $$30($page $3),$ then monthly

profit margin $(m)$ per customer is $52-30=$$$22.$ Therefore annual profit margin $M=22**12=$$$264.$ If

there is a contract and churn rate is only $2\%$ per month, the annual churn rate is $2**12=24\%$; then the

corresponding retention rate, $r=1-0\mathrm{.}24=0\mathrm{.}76.$

Similarly, you can calculate LTV using different churn rates $($contract vs$.$ non$-$contract pricing$),$ as well as

using different acquisition costs. For example, the $AC$ for Virgin is less than that for the big players like

Verizon because Virgin has lower advertising costs per customer $($$$60),$ lower subsidies on handsets

$($$$30),$ and lower sales commissions $($$$30).$ Virgin's $AC$ is $60+30+30=$$$120.$

Please solve for $($i$),($ii$),($iii$)$

Financial calculations, including Acquisition Cost breakdown, Break$-$even period $($months$),$ and LTV analysis under different assumptions $-$

$($i$)$ exactly as the industry prices currently, with and without contracts;

$($ii$)$ with lower prices $($no hidden fees$)$ and lower acquisition costs, but the same basic pricing model as per industry competitors;

$($iii$)$ with a different approach altogether, such as a prepaid plan, without contracts, but assuming lower acquisition costs. Calculate optimal price per minute.

In other words, play around with the numbers in the LTV formula, and see whether you can justify a completely different pricing model than the current

industry pricing model.