3.3 Decision Making Techniques

Question 1

methods of quantitative sales forecasting (3)

Answer 1

Correlation
Extrapolation
Moving Averages

Question 2

What is Correlation

Answer 2

when there is a link between two variables

Question 3

What is Extrapolation

Answer 3

Predicting future sales using past data

Question 4

what are moving averages

Answer 4

averages calculated from successive segments of data

Question 5

Limitations of quantitative sales forecasting

Answer 5

seasons
competition
legislation changes
market changes

Question 6

payback period equation

Answer 6

initial outlay / net cash flow per period

= years/ months

Question 7

Average rate of return equation

Answer 7

average annual return/ initial outlay x100

Question 8

pros and cons of ARR

Answer 8

P-considers all net cash flows
-easy to understand and compare %s

C-opportunity cost of investment is ignored

Question 9

pros and cons of NPV

Answer 9

P- can vary the discounted value to adjust risk level
-considers opportunity cost

C-hard to select an appropriate discount value

Question 10

Limitations of decision trees

Answer 10

hard to know the success and failure probabilities