(1).For the 100,000 bonus point offer, do the margin analysis for each customer type (transactors,

revolvers, and churners). The table below provides complete information (assumptions and facts) for

you to do the analysis (so you do not need to use any number from the case). Fill in the cell with a "?"

with a number based on your calculation.

Year 1 Transactors Revolvers Churners

Assumptions

Annual spend $18,000 $18,000 $4,000

Percent of balance on revolve 0% 50% 0%

Case Facts

Interchange fee on spend (p. 13 of the case) 1.5% 1.5% 1.5%

Interest rate on revolve balance (midpoint of range

given on p. 18) 20.5% 20.5% 20.5%

Customer Revenues

Annual card fee (p. 1) $450 $450 $450

Interchange fee revenue on spend ? ? ?

Interest revenue on unpaid balance ? ? ?

Acquisition Expenses

Card acquisition expense (p. 2) $350 $350 $350

Bonus point expense (@100k) (1.5% x 100k) (p. 8) $1,500 $1,500 $1,500

Margin ? ? ?

Assumptions as follows:

Assumptions
Year 1	Transaction	Revolver	Churner
Annual Spend	$18,000	$18,000	$4,000
% of balance on revolve	0%	50%	0%
Case facts
Interchange Fee on Spend	1.5%	1.5%	1.5%
Interest Rate on Revolve Balance	20.5%	20.5%	20.5%
Customer Revenues
Annual Card Fee	$450	$450	$450
Interchange Fee Revenue on Spend	$270 =($18,000* 1.5%)	$270= ($18,000 * 1.5%)	$60 =($4,000* 1.5%)
Interest Revenue on Unpaid Balance	$0 (no balance on revolve)	$18,000*50%*20.5%= $1,845	$0 ( no balance on revolve)
Total Revenue	$450+$270= $720	$450+$270+$1,845= $2565	$450+$60+$0=$510
Acquisition Expenses
Card Acquisition Expense	$350	$350	$350
Bonus Point Expense @100k (1.5% x 100k)	$1,500	$1,500	$1,500
Total Acquisition Expense	$1,850	$1,850	$1,850
Margin	$720-$1,850= -$1,130	$2,565-$1,850= $715	$510-$1,850=-$1,340

(2). How long will transactors need to remain cardholders in order to generate enough revenue to cover the acquisition expense?

Card Acquisition Expense ($350) divided by Margin (-$1,130)= -0.31 years?? CAN YOU HAVE A NEGATIVE YEAR?

(3). How much would transactors and revolvers need to spend in the first year in order to cover the

acquisition costs?

II.

Transactors

	Transactors	Revolvers
Total Acquisition Expenses	$1,850	$1,850
Interchange Fee	1.5%	1.5%
Interest Revenue	Interchange fee revenue is x*1.5%=0.015X	50%(X)*20.5%= 0.1025X
Annual Card Fee	$450	$450
Solve for X	X=$($1,850-$450)/0.015 X=$93,333.33	X=($1,850-$450)/0.1175 X=$11,914.89

Transactors would need to spend $93,333.33 and Revolvers would need to spend $11,914.89 in the first year to cover the acquisition costs.

 

IS THIS CORRECT? Why or why not ? Explain