Question

Exercise: This is a common situation in the real world. Assume that you are an analyst covering a "recurring revenue" type firm. Recurring revenue firms typically earn revenues from customers over multiple periods. For instance, cable companies pay to acquire new customers, and the customers pay for services over a recurring time period. You will notice that this format is cost-driven, meaning that certain costs drive revenue! As an analyst, you want to know a) the financing needs for the firm, and b) how much the firm is worth. "Note that we would typically build this model on a monthly basis, but this exercise gets to the concept without you using Excel. As a "star analyst," you have used your skills to observe the financial metrics of the firm's competitors, industry trends and macroeconomic trends. Also, you have listened to and critiqued the firm's latest quarterly conference call. You incorporated all of this information to generate the following assumptions: 500 Assumptions 2020 2021 2022 ARPU - Average Revenue per User (annual, beginning customers) $ 1,200 $ 1,500 $ 1,800 Customer Assumptions Customer Acquisition Expense (per new customer) 400 $ 450 S 450 Customer Churn (% of beginning customers who quit service) 10% 20% 20% Cost of Goods Sold per User (use beginning customers) 400 $ 500 $ 600 SG&A expense: Total Customer Acquisition Marketing Expense $ 120,000 $ 150,000 $ 180,000 Other SG&A expenses $ 80,000 $ 100,000 $ 100,000 Capital Expenditures (Capex) "Success-Based" Capex (capital expenditures / new customer) $ 800 S 600 S "Maintenance" Capex Equals Depreciation Expense Depreciation (% of lagged fixed assets) 10% 10% Interest Expense (% of lagged NP and LTD) 10% 10% Average Tax Rate 25% 25% Required Cash Equal to Accounts Payable Days Sales in Inventory Days Sales in Receivables 30 Days Payables Outstanding Capital Structure Decisions 10% Dividend Payout Ratio Planned LTD (year end) 500,000 600,000 700,000 2,750,000 Equity Account (Par+APIC) 2,750,000 2,600,000 0% 25%

Please complete tge customer numbers, income statment, balance sheet and statement of cash flows with tge provided information

Answer 1

A) Total Customer Aquisition Table as below;

	Actual	Projected Customer
Particulars\Year	2019	2020	2021	2022
Begining Customer	500	650	885	1041.33
Addition	200	300	333.33	400
Churn	-50	-65	-177	-208.266
Ending Customer	650	885	1041.33	1233.07

B)