Asked by Beatriz Sarai on Jul 13, 2024
Verified
In general, would the degree of forecasting risk be greater for a new product or a cost-cutting proposal? Why?
Forecasting Risk
The risk that a forecast may prove to be incorrect, potentially leading to financial losses or missed opportunities in financial markets.
Cost-Cutting Proposal
A plan or suggestion aimed at reducing expenses to improve profitability.
- Comprehend the importance of prediction inaccuracies and their impact on the evaluation of capital spending projects.
- Comprehend the implications of high operating leverage in industry and project management.
Verified Answer
JW
Jacob WilliamsJul 19, 2024
Final Answer :
The cost cutting proposal should have a lower degree of forecasting risk since it is likely the analyst will be able to more accurately forecast the changes in cash flow related to cost-cutting. New products, on the other hand, inherently possess a great degree of uncertainty, thereby increasing the level of forecasting risk.
Learning Objectives
- Comprehend the importance of prediction inaccuracies and their impact on the evaluation of capital spending projects.
- Comprehend the implications of high operating leverage in industry and project management.
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