Question 5 (1.5 points)

A start-up company, PurePure, is planning to launch a subscription-based organic food delivery service. PurePure believes that their wholesome pured-to-order organic food will be best received by health-conscious working moms who are busy but do not want to compromise the quality of what their family is eating. PurePure has named this segment of customers Working Mom Wanda. PurePure estimates that a Wanda would spend on average $800 per year, and the cost of serving her is approximately $600 per year. PurePure also knows that a Wanda has a churn rate of 20%.

What is the maximum amount of money PurePure should be willing to spend on acquiring a Wanda assuming it wants to at least break even on each Wanda? That is, at what acquisition cost does the customer lifetime value for a customer acquired become equal to zero?

Assume that the firm has a three-year time horizon and that there is no revenue or cost growth during this time. That is, for this decision, the firm is only interested in what happens in the first three years. Thus, please conduct calculations for the first three years only. Assume there is a discount rate of 5% per year. Round to 2 decimal places. Give your answer in dollars and cents