1. The equation for customer lifetime value is presented below - One important merit of this equation is that ______________________.

	a.	it presents CLV as a discounted sum total of future expected purchases
	b.	it presents CLV as a sum total of future expected purchases
	c.	it presents CLV as a market-level, as opposed to individual-level, measure
	d.	it presents CLV as a constant value over time

EQUATION 1 Customer Lifetime Value (CLV) In general, CLV for a customer can be written as: CLV =- -? (1+i)' where m = profit or contribution margin during yeart r = retention probability during yeart i = constant discount rate t = year Equation 1 captures several key aspects of customer profitability: the current as well as future revenue potential of the customer, the cost of providing goods and services, the time value of money, and the uncertainty associated with future cash flows should a customer stop doing business with the organization. The concept of CLV is analogous to discounted cash flow in finance, with two major differences. First, CLV is calculated at the individual customer level, not at the aggregate level, because profitability and retention probability vary by customer. Second, we account for the possibility that customers stop doing business with the company by defecting to a competitor or getting out of the market. We can simplify the CLV calculations by assuming that (1) customers have a constant profit margin m over time, (2) customers have a constant rate of retention rover time, (3) the discount rate is constant over time, and (4) value is estimated over an infinite horizon. These assumptions are reasonable under most scenarios and can be easily modified. Under these assumptions, 5 CLV simplifies to