Part A: Renewal Rate
The company argues that the membership persistency rate is around 75%. Using the information provided in the case, estimate the membership renewal rate. Explain how you arrived at your estimate.
[Similar logic can be used to estimate membership renewal rates of companies like Netflix, Amazon, etc.]
It turns out that investors can convert income statement and balance sheets using the SEC Method (to considerable degree of accuracy), based on the existing income statement and balance sheet provided by the firm.
Find out what would have been total expense and pre-tax income of Year 1998, had the firm been using the SEC Method, as suggested by the critics. Explain your logic.
(This will be an easy problem if you have a good sense of accounting logic).