3.3

Question 1

What a decision tree

Answer 1

A business can’t afford to follow every option so it may use a decision tree to analyse the probability of a success in a choice of strategies

Question 2

What is investment appraisal

Answer 2

attempts to determine the value of capital expenditure projects. It enables the business and it’s investors to compare projects so that the business can expand and meet their objectives - usually profit maximisation and efficiency

Question 3

What is investment appraisal used to determine

Answer 3

whether the long term investments will give the best return.
• Projects such as;
• new machinery
• new premises
• research and development projects

Question 4

How to calculate the average rate of return

Answer 4

Add up all the inflows from a certain number of years

Minus the original cost

Divide this by the number of years

Take that and divide it by the cost x 100 = ARR %

Question 5

What is the Net Present Value (NVP)

Answer 5

it takes into account that money in the future is not worth what it is today - so it adds in a discount table to make it more realistic

Question 6

What is quantitative sales forecasting (QSF)

Answer 6

statistical technique which uses data to make predictions about the future (in terms of sales

Question 7

What can a business do with Quantitive sales forecasting

Answer 7

Once a business has carried out time series analysis they will use this information to;

• Organise production

• Organise resources in the business e.g. employees, premises, raw materials

• Organise marketing to back up the sales predictions