3.3

Question 1

payback peried equation

pros
cons

Answer 1

payback period = CE/annual net cash flow

pros:
- qick, easy
- good for ferms who nedd to focus ono cash flow

cons:
- time value of money ignored (e.g inflation)
- ignores cash flow after payback

Question 2

ARR equation

pros
cons

Answer 2

ARR = avarge net return / investment
x100
pros:
- takes account of all the projects cash flow
↑long term investments
↑investment from log term investors (e.g pensions)
-↑capital availible
-↑spent on activitys like promotion
-↑sales

cons:
- time value of money ignored (e.g inflation)

Question 3

desicion tree pros cons

Answer 3

pros:
- good visual representation
compear options quantitively and objectivly
- good for desicions that are familuar with the firm as they can make accurate guesses of probabilityts

• qick and easy
  ↓decision making time
  ↑reactivity
  ↑abylity to meet consumer need/demands
  ↑sales

cons:
- quantitatove ∴ignor qualitative factors
- prbabilityes are hard tp predict accuretly
∴probabilitys could be wrong
∴cash flow problems if plan followed
↑shorrt term loans
↑intrest
↑costs

• bias on the person who made them

Question 4

what is totla float time equation

critical path analysis pros
cons

Answer 4

total float time = LFT - duation - EST of last activity

pros:
- finds the shortest time possible
↑speed of projects
↑reactivity
∴can be first to act on new consumer trends
∴comp adv

cons:
- CPA may incorroch focuss on speed
↓quality

• based on estimates
• doesnt account for some things e.g weather or employ illness