3.3 Decision Making

Question 1

What is a sales forecast?

Answer 1

A sales forecast provides an estimation of future sales figures using past data and considering predictable external factors

Question 2

What are the main methods used in quantitative sales forecasting?

Answer 2

Moving averages
Extrapolation
Correlation

Question 3

What are the limitations of quantitative sales forecasting?

Answer 3

1. Seasonality
2. Competition
3. Publicity
4. Market changes
5. Changes to legislation

Question 4

What is investment appraisal?

Answer 4

Invest,ent appraisal involves comparing the expected future cash flows of an investment with the initial outlay for that investment

Question 5

What is a payback period?

Answer 5

The payback period is a calculation of the amount of time is is expected and investment will take to pay for itself

Question 6

What is the formula for Average Rate of Return (ARR)?

Answer 6

(Average annual return/ initial outlay) x100

Question 7

What are the advantages of ARR?

Answer 7

• considers all of the net cash flows generated by an investment over time
• It is easy to understand and compare

Question 8

What are the disadvantages of ARR?

Answer 8

• Depends on an average of cash flows it ignores the timing of those cash flows
• Opportunity cost