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Revenue Trends

(attached is the company I analyzed in Week 3)

(The Question that needs to be answered) - Look back at the company you analyzed for revenue trends in Week Three. Now, assume there is a 50% chance that the revenue is what you predicted in Week Three, a 30% chance that it is the same as last year, and a 20% chance that it is lower than last year by a small amount-you choose how much. Using this information, how can you create an estimate of revenue that considers these different probabilities? Why would that estimate be better than any of the original three?

(what I need from YOU is to take the revenue from the excel attachment and answer the above question. I can't figure out what the revenue amount is that needs to be plugged into this problem.) Please Help

(below is a brief example with explanation - I am not sure if this explanation is correct, but it seems to make sense to me. These are not actual numbers because the original person that I asked for help did not have the information that I am providing in the Excel attachment)

(first attempt to explain this to me) Since I don't have the original data, I'll explain how to work this problem. The problem with the three estimates (week 3, last year, and slightly lower) is that they each only happen with a certain probability. In other words, there is only a 50% chance that the revenue will be what you predicted in week 3.

What we need to do is find the expected revenue. The way that we do this is by finding the product of the estimate with the probability of getting that estimate and adding all those up for each possible outcome. This gives us an expected value. For example, consider the following table. I'm making up these values, since I don't have what you're working with.

Revenue Probability Rev.*prob.
Week 3 100000 0.5 50000
Last Year 120000 0.3 36000
Slight decrease 90000 0.2 18000
add these up----> 104000

So our expected revenue is 104,000. Now, we can also consider the variability of this value as a measure of the certainty of this estimate.


Solution Preview

You have not provided the revenue that you predicted in Week 3. I am assuming that you predicted the 2008 revenue in Week 3. So I'll take that and follow the same approach as you outlined above:


Solution Summary

The solution goes into a great amount of detail about the question being asked. The concepts are very well explained and easy to understand. The solution can be followed very easily by anyone who has some understanding of the concepts beforehand. Overall, an excellent response to the question. The attachment contains all the details with trend predictions. It is also very well written and explained.