3.7.7 Analysing The External enviroment To Assess Opportunties And Threats: The Competitive Enviroment

Question 1

What are the five forces in porter’s forces model?

Answer 1

-Shows an industry being influenced by five competitive forces.
-it analyses the state of the market and helps managers figure out the best strategy to gain competitive advantage.
-it is a decision making tool.

Question 2

How could a business raise entry barriers to a market?

Answer 2

Patents or trademarks can be used to make it harder for new entrants to sell similar products.

Question 3

What are the two questions that businesses ask potential investors

Answer 3

-how long will it take to get back the money that they’d spend?
-how much profit will they get from the investment?

Question 4

Average rate of return formula

Answer 4

Average net return
—————————- X100
Investment

Question 5

What is the formula for payback period?

Answer 5

Amount invested
————————-
Annual net return

Question 6

advantages and disadvantages of average rate of return calculation?

Answer 6

-Easy to calculate and understand
Takes into account of all projects cash flows.
-however it ignores the timing of the cash flows for eg. A company might put more value on money that they get sooner rather than later.

Question 7

Advantages and disadvantages of payback period

Answer 7

-Easy to calculate and understand.
-is very good for high tech projects or any project that might not provide long term returns.
-however it ignores cash flow after payback and also ignores the time value of money

Question 8

What is net present value?

Answer 8

discounted cash flow is an investment appraisal tool and uses net present value to calculate the return of the project.

Question 9

What does it mean if a project has a negative net present value?

Answer 9

Means the business could get a better return by putting their money into a savings account rather than going ahead with the project.