What are some pros and cons of computing an expected return using a user-specified model versus estimating it from historical data?

Q: How can the Present-Worth Comparison be done?

A: The present worth method of comparison will diminish the cash flows of every choice to time zero by…

Q: Which Variable Is most critical in Sensitivity Analysis?

A: Sensitivity analysis helps to analyze the project by considering different variables. It helps…

Q: How do the Internal-Rate-of-Return Criterion relate to the PW Analysis?

A: Capital budgeting:   It is the process in which the business uses to determine which proposed fixed…

Q: Discuss the sensitivity of the model to changes in the value of the input variables

A: It is a technique that is used to get the estimates of independent variables by changing the…

Q: What does a failed net-investment test indicate?

A: Answer: Net investment test: The company will not overdraw at any stage on its return, and is thus…

Q: What is the purpose of carrying out an incremental analysis?

A: Incremental analysis is also known as Relevant cost approach Differential analysis Marginal…

Q: Monte Carlo methods is more advantageous with more uncertainties of data in the financial market. It…

A: Monte Carlo simulations are used to estimate the likelihood of various outcomes in a process that…

Q: What reinvestment rate assumptions are built into the NPV, IRR, and MIRR methods? Givean explanation…

A: It is a method under capital budgeting which includes the calculation of net present value of the…

Q: What are the shortcomings of the internal rate of return criterion?

A: Solution- Internal Rate of Return (IRR)-      The Internal Rate of return (IRR) is that the discount…

Q: What are the basic criteria for selecting a forecasting model?

A: The process that is used to anticipate the demand for the product or service of the business is…

Q: What is a yield curve, and what information would you need todraw this curve?

A: Yield curve: It could be a line plotting bond yields (coupon rates) of comparative credit quality…

Q: What are some possible financial decisions in which using the Present Value (PV) formula might be…

A: The present value (PV) is the current value provided a defined rate of return of a future amount of…

Q: An analysis of what happens to the estimate of net present value when only one input variable is…

A: Net Present Value: It is the present worth of future cash flows and the initial cost of the project.…

Q: The internal rate of return (IRR), despite its shortcomings, can be a useful analysis tool for…

A: IRR is the required rate of return for the project to have zero Net Present value.

Q: What alternative approaches can be used to estimate variable consideration?

A: The alternative approaches that can be used to estimate variable consideration are: Expected value…

Q: Why do most of the engineers prefer Rate of Return Analysis to the PW method?

A: Answer: They would be calculating the present worth of cash flows using a net present value…

Q: Why do conflicts sometimes arise between the netpresent value (NPV) and internal rate of return(IRR)…

A: The basic assumption between NPV and IRR method is the cash flows are reinvested. In the NPV method,…

Q: Which of the following should not be included as an application of the rate of return concept? rate…

A: As per the guidelines, only one question is allowed to be answered so, I am answering question no.…

Q: What is the difference between the possible returns and the expected return?

A:

Q: Define average return

A: The formula to compute average return as follows:

Q: Define Expected rate of return

A: Introduction: Usually return is a kind of profit that comes from your investment. Example, an amount…

Q: What is meant by partitioning the internal rate of return? Why is this procedure meaningful?

A: Internal rate of return is defined as the annual rate of earnings on an investment and unlike income…

Q: Which alternative should be selected? Use a challenger-defender rate of return analysis.

A: Given,  Particulars Projects A($) B($) C($) D($) Initial investment 8500 18500 26500 30000…

Q: Compare judgmental, time series, and causal forecasting models.

A: Judgmental models are the subjective criteria in which gauges are based on master ideas. Individuals…

Q: Using the adjusted present value model, under what assumptionsare the compressed APV results…

A: npv is the sum of the pv of all future cashflows less sum of the pv os all cash flows associated…

Q: Describe the Internal-Rate-of-Return Criterion?

A: Internal rate of return (IRR) is defined as the rate of discount at which the NPV of human capital…

Q: What is the difference between arithmetic and geometric mean returns?

A: The difference between arithmetic mean return and geometric mean return is mainly in two aspects…

Q: How is the standard deviation of returns calculated?

A: Standard deviation is ascertained as follows: The mean worth is dictated by including all the…

Q: Explain Key Statistical Relationships between Covariance and Correlation of Returns?

A: Covariance:It is defined as the statistical relationship between stock prices of stock that vary…

Q: What is internal rate of return (IRR) method?

A: NPV shows the excess of PV of all the cash inflows over the initial outlay of the project. It is a…

Q: What is the difference between positive and negative predictive value?

A: Positive predictive value is the probability that subjects with a positive screening test truly have…

Q: Describe the Methods for Finding Rate of Return?

A: Capital budgeting is the process a company follows to decide whether to purchase a fixed asset or…

Q: Present the internal rate of return criterion and its strengths and weaknesses.

A: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only…

Q: How is the Rate of return is an intuitively familiar and understandable measure of project?

A: Company enters into diversification once it reaches a profit level. Expanding the business is part…

Q: What term refers to the uncertainty inherent in projections of future ROIC?

A: Business risks are risks of uncertainty for the company. This is a type of risk where the returns…

Q: What is the general goal of trend analysis?

A: Trend analysis:   Trend analysis is prepared to make comparison between the previous year's…

Q: Calculate the average rate of return, and conclude your results with your comments about the ARR for…

A: Calculation of Accounting Rate of Return (ARR)  Year                             Net Cash Flow 1st…

Q: Explain realized rate of return

A: The return generated by an investment is any asset class is the normalized rate of return. When the…

Q: What is Modified Internal Rate of Return (MIRR) method?

A: Internal rate of return (IRR): The internal rate of return (IRR) is a measure utilized in capital…

Q: Summarizes the process of performing incremental inves1ment analysis?

A: The incremental analysis is likewise a quantitative dynamic technique called cost approach, marginal…

Q: Define the term Mean and Variance of an Investment Opportunity?

A: In terms of investment, mean is the average of all the sources of capital contributed with regard to…

Q: What advantage does scenario analysis have over sensitivityanalysis?

A: In finance, we are required to analyze the change in value of one variable over the change in the…

Q: Describe the advantages of using CAPM model to determine the expected return.

A: The question is related to Capital Asset Pricing Model.

Q: Explain an example how to calculate internal rate of return.

A: IRR is the return actually earned by the investor and discount rate is the return which the investor…

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.