Discount Rate:

Question from Test. You are charged with computing CLV for an art supply vendor based in Birmingham, AL$.$ In speaking with management about market conditions, you reach the mutual determination that there is a moderate level of uncertainty due to unpredictable shifts in technology and market competition. As such, you set the discount rate to $20\%($some of you got $30\%)$ in computing CLV$.$

What discount would you apply to future revenues for period $N+1?$

General formula for computing the discount:

$($Discount from Prior Period$)(1+$ Discount Rate$){?}_{(})$

At period N $($present$),$ there is no discount. In other words, the value of current revenue is worth $100\%$ of today's current revenue.

Formula for computing the discount at $N+1(1\mathrm{.}00$ in the numerator $=100\%)$:

$1\mathrm{.}00(1+$ Discount Rate$)$

a$.$ If discount rate is $25\%,$ what would be the discount at $N+1?$

b$.$ To compute the discount rate for $N+2,$ use your answer from $N+1$ in the numerator and repeat. What is the discount at $N+2?$