Review Concept Question 1, 2 and 3 on page 284. In at least 200 words, fully answer Concept Question 9 on page 284, give at least three considerations. Support your answer. Respond to at least two of your fellow students’ postings.
1. Forecasting Risk. What is forecasting risk? In general, would the degree of forecasting risk be greater for a new product or a cost-cutting proposal? Why?
2. Sensitivity Analysis and Scenario Analysis. What is the essential difference between sensitivity analysis and scenario analysis?
3. Marginal Cash Flows. A co-worker claims that looking at all this marginal this and incremental that is just a bunch of nonsense, and states: “Listen, if our average revenue doesn’t exceed our average cost, then we will have a negative cash flow, and we will go broke!” How do you respond?
9. Option to Wait. An option can often have more than one source of value. Consider a logging company. The company can log the timber today, or wait another year (or more) to log the timber. What advantages would waiting one year potentially have?
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