Chapter 10 Flashcards
relationship between risk and return
positive correlation
disadvantage of payback
doesn’t consider the actual return/ gain, just when its paid back the investment and therefore is short termism
4 types of investment appraisal
RECO
Payback
NPV
IRR
What is an initial coin offering (crypto)
involves the creation of virtual tokens which are sold to raise funds for business projects
limitations of using expected values (EV)
probabilities are estimates and therefore inaccurate
long term averages so not helpful with short term decisions
doesn’t consider time value of money
doesn’t consider attitudes to risk
what is the full cost
total amount sacrificed to meet a particular objective
why is it good to calculate full cost
compare revenue to full cost, to compare actual to budge to try and control
what are qualitative techniques to forecasting
sales manager gathers info from sales team
using multiple independent experts and combing their opinion
using market research to estimate demand
what are quantitive techniques to forecasting
using historic data
advs of time series analysis to separate seasonal fluctuations from overall trends
easy to understand and do
takes account of seasonal patterns
disadvs of time series analysis to separate seasonal fluctuations from overall trends
ignores factors other than time
assumes the future will follow same trend as past
benefits of budgets
promotes forward thinking
motivates performance
provides a system of authorisation as gives limits to managers on spending
limitations of budgets
demotivating if unattainable
slack may be built in so managers get bonuses
focus on short term
what is a standard cost
an estimated unit cost
limitations of standard and variance analysis
standard costs can quickly become out of date
variances can be caused by things not in control of management
