The Protect-All home-security alarm service currently charges $200/year for its home-alarmservices. They are opening up a new market area for their services, which containsapproximately 5,000 homes. They estimate that at the $200/year price, they would obtain250 new customers in this area. Their contribution margin for this service is 60%.

(a) If the managers offer a one-year introductory discount of 50% off, calculate the one-yearbreakeven sales level for this price decrease.

(b) Assume that after the first year, 60% of the new customers will subscribe to the serviceat its full price ($200/year) and for 5 years after that, these customers will show an80% retention rate. Given these estimates, calculate the CM adjustment for customerlifetime value for the 5-year planning horizon.

(c) Given your calculations for Part (b), revise your calculation of the one-year breakevensales level for this price decrease. Explain how this revised calculation can help thecompany’s managers decide whether to offer the 50% one-year introductory discount.

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