Show me how to calculate (a) to (h)

The RTO model for smartphones would work as follwos;

Customers could lease a high-end smartphone such as the Apple iPhone with retail price of $649 for a monthly fee of $30 with a minimum term of 12 months. After the minimum term, customers would have three options:

(1) buy the leased phone for $499 or

(2) continue leasing the phone for 30/ moth or

(3) return the leased phone to BB company.

It was estimated that 25% of customers would buy the phone, 25% would return the phone, and the remaining 50% would keep leasing the phone for an average of 24 months, after which they would return the depreciated price. The new phones would cost BB company an average of $599 to acquire. The depreciated value of the phones that BB company could realize was estimated at $499 ate the end of 12 months and $249 at end of 24 months. Due to the risky nature of the customers who would be attracted to the RTO arrangement, it was estimated that 20% of the phones rented under this arrangement would be lost to defaults. In the case of a default, BB company would need to write off the entire cost of buying the phone. Best Buy estimated that 0.5 million customers would sigh up for the RTO model in the first year, 1 million in the second year, and 2 million in the third year. BB company would apply an annual discount rate of 12% to calculate the NPV of the cash flows from the RTO model.

Rent-to-Own Model
Asssumption	Value
Retail price of phone	649
Cost to acquire fro Best Buy	599
Monthly lease fee	30
Repurchase option after 12 months	499
Depreciated price after 12 months	449
Depreciated price after 24 months	249
% Defaults/lost phones	0.2
% Customers who buy after 12 months	0.25
% Customer who return after 12 months	0.25
% Customer who lease for 24 months	0.5
Expected cash flow	(a)
Less cost of defaults	119.8
Net expected cash flow	(b)
Year 1 Customers	500,000
Year 1 Revenue	(c)
Year 2 NPV	(d)
Year 2 Customers	1,000,000
Year 2 Revenue	(e)
Year 3 NPV	(f)
Year 3 Customers	2,000,000
Year 3 Revenue	(g)
Total Revenue 3 years	(h)

Answer rating: 100% (QA)

To calculate the values a to h as described we will use the provided information and make some assumptions Lets break down the calculations step by st... View the full answer