Instructor key — Module 3: Discount & Premium Adjustments: Customer Concentration, Key-Person Reliance, and Recurring Revenue
Instructor/solutions version. Keep separate from the student assignment during assessment.
Calculation solution
A $500,000 customer has 48% contribution margin and $40,000 avoidable overhead. Calculate EBITDA loss on full departure.
Calculated result: 200,000.00000000 (actual USD, except where the question requests a ratio or return). Lost contribution $240,000 less avoidable cost $40,000 leaves $200,000 recurring loss. Use appropriate display rounding while retaining formula precision. This result is generated from the independent assignment inputs, not copied from the chapter answer.
Conceptual and judgment marking
A complete conceptual response identifies the measure's economic purpose, the defined perimeter and the risk of confusing it with another metric. Award up to 20 points for explanation, not terminology alone. For the applied question, award up to 15 for linking evidence to a concrete acquisition consequence; do not require an optimistic recommendation.
Spreadsheet marking
Award 15 of the 30 spreadsheet points for live links from assumptions, 10 for a coherent 10% mutation and predicted direction, and 5 for units, readable formatting and checks. Inspect formulas directly rather than accepting cached numbers. Use the instructor workbook for the controlling capstone model; this independent lab uses different inputs.
Calculation marking: 10 points for the correct equation/perimeter, 15 for intermediate arithmetic, and 10 for result, units and rounding. Overall pass requires 80 and all critical checks in the student version.
Original chapter practice solutions
The following solutions were moved out of the chapter so full answers no longer sit immediately below student questions. Match them in order to the chapter's practice problems.
Worked solution: Contribution lost is $350,000. Avoidable fixed cost offsets $50,000, leaving a $300,000 EBITDA reduction. Remaining EBITDA is $300,000. Revenue share alone does not show this exposure, and the buyer should separately evaluate collection of any outstanding receivable and costs of replacing the customer.
Worked solution: Gross retention is ($1 million − $120,000) / $1 million = 88%. Net retention is ($1 million − $120,000 + $150,000) / $1 million = 103%. Net growth hides loss within the opening cohort. Neither ratio alone shows customer acquisition cost, margin, or cash collection.
Worked solution: Remove the duplicated salary deduction. Determine whether residual risks remain, such as license transfer or customer retention, and model or price them separately with support. A generic 10% discount cannot be justified merely by repeating the cost of a role already funded. The correct answer is not necessarily zero residual risk; it is a nonoverlapping explanation.
Worked solution: Conditional PV is $100,000 × [1/1.2 + 1/1.2² + 1/1.2³] = approximately $210,648.15. Probability-weighted PV is $52,662.04. Do not also subtract a multiple of that same expected loss without explaining a distinct exposure. Probability, duration, and cash assumptions require evidence in a real case.
Worked solution: Contribution benefit is $80,000, less $30,000 recurring expense, giving $50,000 incremental EBITDA. The buyer should not add $80,000 to the forecast, omit the initiative cost, and then pay a separate premium for the same improvement. Establish when the benefit begins and whether the change is already reflected in the normalized base.