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    Forecasting Risk and Cost-Cutting Proposal

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    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? Please answer this question in 200 words and give at least three considerations.

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    Solution Preview

    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?
    Forecasting risk, which is also known as estimation risk, is the possibility that errors in projected cash flows will lead to incorrect decisions. Forecasting risk may be greater for a new product because a new product comes with greater needs of attention to competition. We might ask questions such as the following: Are we certain that our new product is significantly better than that of the competition? Can we truly manufacture at lower cost, or distribute more effectively, or identify undeveloped market niches, or gain control of a market? The company will also have to consider the potential competition. This is because success attracts imitators and competitors.

    2. Sensitivity analysis and Scenario analysis- What is the essential difference between sensitivity analysis and scenario analysis?
    Sensitivity analysis is a variation on scenario ...

    Solution Summary

    The expert determines what forecasting risk are. A sensitivity analysis and scenario analysis are determined.

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