An office supply store, is developing its strategic plan for next year. A recent segmentation analysis of their customers by the marketing team has revealed an underserved segment, Medium Size Business with 25-100 Employees. The marketing manager would like to acquire more customers in this segment, but she does not want to overpay to acquire them. Assume the following about ‘Medium Size Businesses’ and then answer the question below.

Assumptions:

Constant Annual Operating Profit (excluding Acquisition Costs) = $500

Constant Annual Retention Rate = 60%

Constant Discount Rate = 20%

Question 1: What is the maximum amount that should be paid to acquire a new ‘Medium Size Business’ customer?