3.3 decision making techniques Flashcards
1
Q
Investment Appraisal: Payback period
A
- Easy to interpret
- Can be compared with competing investments
Limitations:
- Encourage short term thinking which may prevent future opportunities
2
Q
Investment Appraisal: ARR
A
3
Q
Investment Appraisal: NPV (Discounted cash flow)
A
- Allows businesses to considers opportunity cost
Limitations:
- Hard to calculate especially for startups
- May be hard to persuade crowd funders to invest a large amount initially as theres no past data to back up future profits
4
Q
Decision trees
A
- Looks at probability
5
Q
Critics path analysis
A
Earliest start time:
Latest finish time:
Total float:
- Helps you identify areas where a business may need to reallocate resources
6
Q
Moving averages (three period/four quarter)
A
- Measures trends
E.g seasonal fluctuations OR random changes
7
Q
Time series analysis
A
- Predicts future sales based on previous data
- Figures based on time they occurred
8
Q
What is investment appraisal?
A
Process that determines if the funds given to a business for investment are likely to be profitable
