Complete Question:
Your firm currently has net working capital of $132,000 that it expects to grow at a rate of 4% per year forever. You are considering some suggestions that could slow that growth to 2% per year. If your discount rate is 10%, how would these changes impact the value of your firm? The value of the firm would $ (Round to the nearest dollar.)
Answer:
The Firm
a. The changes will reduce the value of the firm from $2,200,000 to $1,650,000, a difference of $550,000.
b. The value of the firm would be $1,650,000 if the changes are retained.
Explanation:
a) Data and Calculations:
Current net working capital = $132,000
Expected growth rate = 4%
Desired growth rate = 2%
Firm's discount rate = 10%
Value of firm with expected growth rate of 4% = NWC/(k - g)
where NWC = Net Working Capital
k = discount rate
g = growth rate
Therefore value of the firm = $132,000/(0.1 - 0.04)
= $132,000/0.06
= $2,200,000
Value of the firm with reduced growth rate of 2%:
= $132,000/(0.1 - 0.02)
= $132,000/0.08
= $1,650,000
Preferred stock issued in exchange for land would be reported in the statement of cash flows in Group of answer choices the cash flows from financing activities section the cash flows from investing activities section a separate schedule the cash flows from operating activities section
Answer: a separate schedule
Explanation:
Preferred stock, are referred to as the shares of the stock of a company whereby the dividends are paid out to the preference shareholders before the common stock dividends are issued.
It should be noted that the preferred stock which is issued in exchange for the land will be reported in the statement of cash flows in a separate schedule.
How do you identify the need for the meeting?
The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division. This casing is also sold to external customers for $25 per unit. Variable costs for the casing are $12 per unit and fixed cost is $3 per unit. Cotwold executives would like for the Molding Division to transfer 8,000 units to the Assembly Division at a price of $18 per unit. Assume that the Molding Division has enough excess capacity to accommodate the request.
Calculate the effect on Molding Division’s net income if it accepts the $18 transfer price.
Answer:
the effect on Molding Division’s net income if it accepts the $18 transfer price is $6 per unit
Explanation:
The computation of the effect on Molding Division’s net income if it accepts the $18 transfer price is shown below:
= Transfer price - variable cost per unit
= $18 - $12
= $6 per unit
Hence, the effect on Molding Division’s net income if it accepts the $18 transfer price is $6 per unit
So, the same is to be considered and relevant
During its inception, Devon Company purchased land for $100,000 and a building for $180,000. After exactly 3 years, it transferred these assets and cash of $50,000 to a newly created subsidiary, Regan Company, in exchange for 15,000 shares of Regan's $10 par value stock. Devon uses straight-line depreciation. Useful life for the building is 30 years, with zero residual value. An appraisal revealed that the building has a fair value of $200,000. 5) Based on the information provided, at the time of the transfer, Regan Company should record: A) Building at $180,000 and no accumulated depreciation. B) Building at $162,000 and no accumulated depreciation. C) Building at $200,000 and accumulated depreciation of $24,000. D) Building at $180,000 and accumulated depreciation of $18,000.
Answer:
The answer is "Option D".
Explanation:
R Company must register a [tex]\$180,000[/tex] building, as well as, an accumulated [tex]\$18,000[/tex] depreciation.
It makes the design the right decision with [tex]\$180,000[/tex] as well as the accrued [tex]\$18,000[/tex] depreciation.
Select the correct term for each of the following definitions. Definition Term An interest-earning deposit with a specified maturity date Any good that is widely accepted for purposes of exchange and in the repayment of debt Coins and paper money Which of the following statements about the history of banks are true? Check all that apply. Warehouse receipts, issued by goldsmiths were often used instead of gold itself to make payments. The amount of gold represented by warehouse receipts was less than the actual amount of gold on deposit. Goldsmiths held deposited gold and issued receipts to their customers.
Question Completion with Options:
Money, Currency, Time Deposit
Answer:
1. Terms Definitions
Time Deposit An interest-earning deposit with a specified maturity date
Money Any good that is widely accepted for purposes of exchange
and in the repayment of debt
Currency Coins and paper money
2. The statements about the history of banks that are true:
Warehouse receipts, issued by goldsmiths were often used instead of gold itself to make payments.
Goldsmiths held deposited gold and issued receipts to their customers.
Explanation:
Banking evolved with the activities of goldsmiths who warehoused gold brought by customers for safeguarding by issuing them with warehouse receipts. Before long, the warehouse receipts were used as a means of payment (or exchange). That is, the warehouse receipts were used as currency, which is the modern-day equivalent of coins and paper money.
When constructing a demand function, it is necessary to hold many other factors constant, so that a relationship between price and output can be established.
a. True
b. False
Answer:
True
Explanation:
The given statement is true because there are other factors that impact the demand for a commodity for example if the income of a person rises then the person will consume more commodity and the demand curve will shift.
Therefore, other factors should be constant while constructing the demand function because keeping other factors constant will not impact the price and output relationship.
On June 30, 2021, Moran Corporation issued $12.5 million of its 12% bonds for $11.4 million. The bonds were priced to yield 14%. The bonds are dated June 30, 2021. Interest is payable semiannually on December 31 and July 1. If the effective interest method is used, by how much should the bond discount be reduced for the six months ended December 31, 2021
Answer:
the reduction in the bond discount is $48,000
Explanation:
The computation of the reduction in the bond discount is as follow;
= ($11,400,000 × 14% × 1 ÷ 2) - ($12,500,000 × 12% × 1 ÷ 2)
= $798,000 - $750,000
= $48,000
Hence, the reduction in the bond discount is $48,000
Here we considered half as the interest is payable on semi-annual basis
A restaurant is considering buying a new coffee making machine, which will be replaced over and over with a new one when an old one dies. Each coffee making machine costs $143,000, and is expected to die after exactly 6-years. Each machine will costs $10,200 per year to operate. The discount rate that the restaurant assigns to this coffee making machine project is 11 percent per year. The straight-line depreciation method would be used when calculating the machine's loss of value for tax purposes. Each coffee making machine will be fully depreciated all the way to zero at the end of its life. Also, each coffee making machine will have a before-tax salvage value of $10,500 at the end of its life. The restaurant's tax rate is 25 percent. As always, assume that all cash flows occur at year end. If the restaurant buys a coffee making machine over and over in perpetuity, as soon as one dies, what would be the average, or the equivalent, annual cost (EAC) of the machine?
Answer:
Coffee Making Restaurant
If the restaurant buys a coffee making machine in perpetuity, the equivalent annual cost (EAC) of the machine will be:
Equivalent annual cost of the machine = $44,994
Explanation:
a) Data and Calculations:
Initial investment cost of machine = $143,000
Expected useful life = 6 years
Discount rate = 11%
Annual operating cost = $10,200
Before-tax salvage value = $10,500
Applicable tax rate = 25%
After-tax salvage value = $7,875
Annuity factor for 6 years at 11% = 4.231
Present value of costs:
Initial investment = $143,000 ($143,000 * 1)
Annual operating cost = 43,156 ($10,200 * 4.231)
Salvage value = (4,213) ($7,875 * 0.535)
Total costs = $190,369
Equivalent annual cost of the machine = $44,994 ($190,369/4.231)
Compare and contrast different ways in which a taxpayer triggers a realization event by disposing of an asset.
Answer:
There are many ways a taxpayer can trigger a realization event. She can trigger it through a sale or trade by receiving a value greater than the disposed asset. She can also trigger a realization event by making a gift to charity. Other ways include disposal, for example, to a landfill and destruction through natural disaster. In the latter cases, there is a loss to the taxpayer. With a natural disaster, the taxpayer can only obtain a realization gain if reimbursed by the insurance company.
Explanation:
A realization event happens when there is a sale or a disposal of an asset or a discharge from a liability. There is usually an increase in the value realized from the disposal, which is greater than the asset's value before disposal. It also happens when the taxpayer receives a relief from a liability or completes a profitable transaction.
Explain the 5 marketing objectives?
Answer:
Creation of Demand 2. Customer Satisfaction 3. Market Share 4. Generation of Profits 5. Creation of Goodwill and Public Image
Explanation:
The basic purpose of marketing management is to achieve the objectives of the business.
Balance Sheet Jay Pembroke started a business in April. Prepare a Balance Sheet using the following balances for April transactions. Cash $12,950 Accounts Receivable 2,000 Office Supplies 4,600 Prepaid Insurance 1,200 Accounts Payable $300 Jay Pembroke, Capital 18,000 Jay Pembroke, Drawing 100 Service Fees 3,300 Rent Expense 750 You will need to calculate the ending balance of the Capital account.
Answer:
Jay Pembroke Company
Balance Sheet as of April 30
Assets:
Cash $12,950
Accounts Receivable 2,000
Office Supplies 4,600
Prepaid Insurance 1,200
Total assets $20,750
Liabilities:
Accounts Payable $300
Jay Pembroke, Capital 20,450
Total liabilities + equity $20,750
Explanation:
a) Data and Calculations:
Assets:
Cash $12,950
Accounts Receivable 2,000
Office Supplies 4,600
Prepaid Insurance 1,200
Liabilities:
Accounts Payable $300
Statement of Owner's Equity:
Jay Pembroke, Capital 18,000
Net income 2,550
Jay Pembroke, Drawing (100)
Ending Capital 20,450
Income Statement for the month ended April 30
Service Fees 3,300
Rent Expense 750
Net income 2,550
If an employee always stays on-task and
typically finishes work in a timely
manner, what type of control is required?
A. Flexible
B. Close
C. Limited
D. Open
the answer is c because hes limited to what he can controll
Answer each of the following independent questions.
1. Alex Meir recently won a lottery and has the option of receiving one of the following three prizes: (1) $64,000 cash immediately, (2) $20,000 cash immediately and a six-period annuity of $8,000 beginning one year from today, or (3) a six-period annuity of $13,000 beginning one year from today. Assuming an interest rate of 6%, which option should Alex choose?
2. The Weimer Corporation wants to accumulate a sum of money to repay certain debts due on December 31, 2025. Weimer will make annual deposits of $100,000 into a special bank account at the end of each of 10 years beginning December 31, 2016. Assuming that the bank account pays 7% interest compounded annually, what will be the fund balance after the last payment is made on December 31, 2025?
Answer:
option 1
$1,381,644.80
Explanation:
Alex would choose the option that has the highest present value
Present value is the sum of discounted cash flows
Present value can be calculated using a financial calculator
pv of option 2
Cash flow in year 0 = 20,000
Cash flow in year 1 - 6 = $8,000
i = 6%
PV = 59,338.60
OPTION 3
Cash flow in year 1 - 6 = 13,000
i - 6%
pv = 63,925.22
option 1 has the highest present value and should be chosen
To find the PV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
2.
future value of an annuity = Annual payment x annuity factor
Annuity factor = {[(1+r)^n] - 1} / r
(1.07^10 - 1 ) / 0.07 = 13.816448
13.816448 x 100,000 = $1,381,644.80
Why do accountants not keep all the accounts at their proper balances continuously throughout the period so that adjusting entries would not have to be made before financial statements are prepared
Answer:
The transactions are recorded when they incur and then there may be some changes in those transaction later on, they all are adjusted at month end with adjusting entries.
Explanation:
It is not possible for an accountant to continuously keep updating every transaction. They all are recorded at inception and then any changes made in those transactions are adjusted at the month end. All balance are reconciled and verified. There can be events which lead to changes to the transaction after the reporting date then these events are considered as events after reporting period and they are treated differently according to guidelines specified in IAS 10.
Bal Corp. declared a $25,000 cash dividend on May 8, 20X5, to stockholders of record on May 23, 20X5, payable on June 3, 20X5. As a result of this cash dividend, working capital
a) Was not affected.
b) Decreased on June 3.
c) Decreased on May 23.
d) Decreased on May 8.
Answer:
b) Decreased on June 3
Explanation:
May 8, 20X5
This is the dividend declaration date. The accountant simply makes an accounting entry to recognize dividend (debit) and increases liabilities arising due to shareholders for dividend obligation (credit)
May 23, 20X5
This date gives us the number of shareholders who are eligible for the dividend.
June 3, 20X5
This date is when the cashflow happens, Cash decreases by $25,000 and the liability once recognized on May 8, 20X5 decreases. Cash is an element of Working Capital. Decrease in cash means a decrease in Assets and consequently a decrease in working capital.
Refer to the In the News below:
ATTACHMENT IS GIVEN BELOW
Instructions: Round your response to two decimal places.
a. How much more are U.S. consumers paying for the 12 billion tons of sugar they consume each year as a result of the quotas on sugar imports?
$ ______ more per pound of sugar
b. How much sales revenue are foreign sugar producers losing as a result of those same quotas?
a) Quantity of decreased sales multiplied by the price of sugar
b) Quantity of decreased sales adding the price of sugar
c) Quantity of decreased sales subtracting the price of sugar
d) Quantity of decreased sales divided by the price of sugar
Answer:
Explanation:
B-Quantity of decreased sales day the price of sugar
Andrews Co. can purchase 20,000 units of Part XYZ from a supplier for $18 per part. Andrews' per unit manufacturing costs for 20,000 units is as follows: Cost Per Unit Total Variable manufacturing cost $12 $240,000 Supervisor salary $3 $60,000 Depreciation $1 $20,000 Allocated fixed overhead $7 $140,000 If the part is purchased, the supervisor position will be eliminated. The special equipment has no other use and no salvage value. Total allocated fixed overhead would be unaffected by the decision. The company should ______.
Answer:
Andrews Co.
The company should ______.
should make the part.
Explanation:
a) Data and Calculations:
Costs to make Part XYZ:
Cost Per Unit Total
Variable manufacturing cost $12 $240,000
Supervisor salary $3 $60,000
Depreciation $1 $20,000
Allocated fixed overhead $7 $140,000
Units to be made or bought = 20,000 units
Cost to buy Part XYZ = $18 per part.
Relevant costs:
Make Buy Difference
Variable manufacturing cost $12
Supervisor salary $3
Total relevant cost per unit $15 $18 $3
Total costs $300,000 $360,000 $60,000
b) There is a cost-saving of $60,000 when Part XYZ is made internally. The cost of depreciation is not relevant in the decision since the equipment has no salvage value or any other use. Similarly, the fixed overhead will still be incurred, no matter the alternative chosen by the company.
Jeff, a local traffic engineer, has designed a new pedestrian foot bridge that is capable of handling the current traffic rate of 300 pedestrians daily. Once the traffic rate reaches 2 comma 000 pedestrians daily, however, the bridge will require a new bracing system. Jeff has estimated that traffic will increase annually at 3 %. How long will the current bridge system work before a new bracing system is required? What if the annual traffic rate increases at 8 % annually? At what traffic increase rate will the current system last only 12 years?
Answer:
a. How long will the current bridge system work before a new bracing system is required?: 64.18 years or 64 years and 2 months.
b. What if the annual traffic rate increases at 8 % annually: The bracing system will last for 24.65 years or 24 years and 7 months.
c. At what traffic increase rate will the current system last only 12 years: 17.13%
Explanation:
a. Denote x is the time taken for the number of pedestrian to grow from 300 to 2000. The current pedestrian is 300, the grow rate per year is 3% or 1.03 times a year. Thus, to reach 2,000, we have the equation: 300 x 1.03^x = 2000. Show the equate, we have 1.03^x = 6.67 <=> x = 64.18
b. Denote x is the time taken for the number of pedestrian to grow from 300 to 2000. The current pedestrian is 300, the grow rate per year is 8% or 1.08 times a year. Thus, to reach 2,000, we have the equation: 300 x 1.08^x = 2000. Show the equate, we have 1.08^x = 6.67 <=> x = 24.65.
c. Denote x as traffic increase rate. The current pedestrian is 300, the grow rate per year is (1+x) times a year. Thus, to reach 2,000 after 12 years and thus a new bracing system to be in place, we have the equation: 300 x (1+x)^12 = 2000. Show the equate, we have (1+x)^12 = 6.67 <=> 1+x = 1.1713 <=> x = 17.13%.
An upward-sloping yield curve Multiple Choice may be an indication that interest rates are expected to increase. may incorporate a liquidity premium. may reflect the confounding of the liquidity premium with interest rate expectations. All of the options are correct. None of the options are correct.
Answer:
All of the options are correct.
Explanation:
The upward sloping yield curve includes the signal with related to the rate of interest that are predicted to rise. It incorporated the liquidity premium. Also it present the liquidity premium along with the predictions of the rate of interest that should be confounded
so as per the given situation, all given statement should be considered
hence, all of the options are correct should be relevant
Assume the economy of country G produces hotdogs and buns in the following quantities and prices in 2017 and 2018. Assume also that 2017 is the base year and the real GDP will be calculated using 2017 prices. What is the real yearly growth (between 2017 and 2018)
Answer:
73.70%
Explanation:
Note: The full question is attached as picture below
Real GDP in 2017 = ($3*5) + ($2*2)
Real GDP in 2017 = $15 + $4
Real GDP in 2017 = $19 million
Real GDP in 2018 = ($3*7) + ($2*6)
Real GDP in 2018 = $21 + $12
Real GDP in 2018 = $33 million
Real Growth rate between 2017 and 2018 = [(33 - 19) / 19] * 100 = [14/19] * 100 = 0.73684211 * 100 = 73.684211% = 73.70%
The most important/essential results from the latest decision round that company managers need to review/study in order to guide their strategic moves and decisions to improve their company's competitiveness and rank among the top-performing companies in the upcoming decision round are:_________.
a. the celebrity endorsement data and the 4 graphs showing branded price and S/Q rating trends in each of the four geographic regions on p. 7 of the FIR.
b. the Income Statement and Balance Sheet data on p. 5 of the FR.
c. the strategic group maps for the Internet segment and Wholesale segment for each geographic region in the Competitive Intelligence Report.
d. the Industry Scoreboard and each company's performance on EPS, ROE, stock price, credit rating and image rating displayed on the first 3 pages of the FIR.
e. the Market Snapshot data in the top half of the Competitive Intelligence Report that shows each company's competitive efforts (prices, S/Q rating, models available, and so on) in each geographic region.
Answer:
e. the Market Snapshot data in the top half of the Competitive Intelligence Report that shows each company's competitive efforts (prices, S/Q rating, models available, and so on) in each geographic region.
Explanation:
In the case when the results arise from the recent decision that taken place the company or the manager should have to study for improving out the competitiveness and the ranking so that the market snapshot data could be done for all the zones and due to this the good decision could be carried out that helps in attaining the goals and objectives of the company
So, the last option is correct
1. The ABC Company is producing an item at unit cost of birr 4.
a) If the supply function isq = 160 + 8 p, where q represents the quantity produced
and p represents the market price, then find the total cost function in terms of p.
b) What is the market price at which the company realizes a total profit of birr 500
YIThe
Answer:
I think its A!
Explanation:
evaluate the pricing strategy of Vinmart retail system
Answer:i think vinsmart is ok
Explanation:
Clark's Chemical Company received refundable deposits on returnable
containers in the amount of $100,000 during 2018. Twelve percent of the
containers were not returned. The deposits are based on the container cost
marked up 20%. What is cost of goods sold relative to this forfeiture?
a. $0.
b. $2,000.
c. $10,000.
d. $14,400.
Answer: $10000
Explanation:
The cost of goods sold relative to this forfeiture will be calculated thus:
= (Refundable deposit × percent of not returned) / (1 + Markup percentage on cost)
= ($100000 × 12%) / ( 1 + 20%)
= ($100000 × 0.12) / ( 1 + 0.2)
= $12000 / 1.20
= $10000
The cost of goods sold is $10000
Bush Company reported net income of $60,000 for the year. During the year, accounts receivable decreased by $8,000, accounts payable increased by $4,000 and depreciation expense of $5,000 was recorded. Net cash provided by operating activities for the year is Group of answer choices
Answer:
Net income from operating activities = $77000
Explanation:
Below is the calculation for Net income from operating activities:
Given the net income = $60000
Decrease in accounts receivable = $8000
Increase in accounts payable = $4000
Depreciation = $5000
Add the values in the net income in order to get the net income from operating activities.
Net income from operating activities = 60000 + 8000 + 4000 + 5000
Net Income from operating activities = $77000
Capital budgeting analysis not only requires the evaluation of cash flows but also requires the understanding of the origin of those cash flows. Based on your understanding of cash flows in a firm, complete and answer the following questions The present value of ___________ can be used to determine the basis of a firm's value. Ideally, capital budgeting analysis should take cash flows into account ___________
Understanding the nature of projects
Capital budgeting analysis often involves decisions related to expansion projects and/or replacement projects. Based on your understanding of expansion and replacement projects, complete the following:
If a clothing store opens a second retal location on the other side of town, this project would be considered__________ project.
What are sunk costs?
Acme Manufacturing owns a warehouse that it is not currently using. It could sell the warehouse for $300,000 or use the warehouse in a new project. Should Acme Manufacturing include the value of the warehouse as part of the in investment in the new project or treat the value of the warehouse as a sunk cost?
Yes, include the value of the warehouse as part of the initial investment in the new project
No, treat the value of the warehouse as a sunk cost
The role of externalities
A paper manufacturer has built a plant that meets all government-mandated environmental regulations, but the pl sant odor when it is being operated. Many residents in the area dislike the paper mill because of these unpleasant odors. This is an example of ________externality.
Answer:
Present Value of Cash Flows
Exactly when they occur
Expansion Project
Sunk cost is the cost which is already incurred and it is not affected by the decision to accept or reject the project.
Include the value of the warehouse as part of the initial investment in the new project.
Negative Externality
Explanation:
Present value of Cash flows is the discounted cash flows which shows the real worth of the money now which is to be received in future. Sunk costs are not part of the project as they are already incurred. These cost are not included in the calculations of the project cash flows. Negative externality is the undesirable impact due to production and manufacturing plants operations on the environment.
Last year Burch Corporation's cash account decreased by $29,000. Net cash provided by (used in) investing activities was $8,400. Net cash provided by (used in) financing activities was $(26,500). On the statement of cash flows, the net cash provided by (used in) operating activities was:
Answer:
The answer is "-10,900"
Explanation:[tex]\text{Cash from operating activities} + \text{cash from investing activities + cash from financing activities} = -29,000[/tex]
[tex]\text{cash from operating activities}[/tex] [tex]+ 8,400 - 26,500 = -29,000[/tex]
[tex]= -29,000 + 26,500 - 8,400\\\\= -10,900[/tex]
Ferric Chemicals, Inc. has fixed costs of $34,000 per month. The highest production volume during the year was in January when 100,000 units were produced, 71,000 units were sold, and total costs of $640,000 were incurred. In June, the company produced only 60,000 units. What was the total cost incurred in June? (Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar.)
Answer:
hhhhh welcome bro im pig frien
Suppose that a company has successfully used architectural innovation to reconfigure a product and is now the market leader. In order to improve its product offering, extend the time that it can extract profits from its products, and maintain high entry barriers for new rivals, itwill most likely engage in __________ innovation next.A. radical.B. architectural.C. incremental.D. either radical or architectural.E. disruptive.
Consider the following time series data. Week 1 2 3 4 5 6 Value 19 13 15 12 17 15 Using the average of all the historical data as a forecast for the next period, compute the following. (Round your answers to two decimal places.)
measures of forecast accuracy:Mean absolute error (MAE)Mean squared error (MSE)Mean absolute percentage error (MAPE)Round your answers to two decimal places.MAE =MSE =MAPE =Using the average of all the historical data as a forecast for the next period, compute the same three values. Round your answers to two decimal places.MAE =MSE =MAPE =Which method appears to provide the more accurate forecasts for the historical data?
Answer:
1. We have:
MAE = 3.60
MSE = 15.60
MAPE = 25.45
2. We have:
MAE = 2.62
MSE = 11.11
MAPE = 19.59
3. The average of all the historical data provides the more accurate forecasts for the historical data.
Explanation:
Note: This question is not correct as the average of all the historical data is asked to be used as a forecast for the next period in requirements 1 and 2 instead of the naïve method (most recent value) for the first requirement. The correct question is therefore presented before answering the question as follows:
Consider the following time series data.
Week 1 2 3 4 5 6
Value 19 13 15 12 17 15
1. Using the naïve method (most recent value) as the forecast for the next period, compute the following (Round your answers to two decimal places.) measures of forecast accuracy:
a. Mean absolute error (MAE)
b. Mean squared error (MSE)
c. Mean absolute percentage error (MAPE).
2. Using the average of all the historical data as a forecast for the next period, compute the same three values. Round your answers to two decimal places.
3. Which method appears to provide the more accurate forecasts for the historical data?
The explanation of the answer is now provided as follows:
The following formulae are to be used:
MAE = Total of Error / Number of observations
MSE = Total of Error^2 / Number of observations
MAPE = Total of Error % / Number of observations
1. Using the naïve method (most recent value) as the forecast for the next period, compute the following (Round your answers to two decimal places.) measures of forecast accuracy:
Note: See part 1 of the attached excel file for the determination of Naïve and Calculations of Error, Error^2 and Error % using the naïve method as the forecast for the next period.
From the attached excel file, we have:
MAE = 18.00 / 5 = 3.60
MSE = 78.00 / 5 = 15.60
MAPE = 127.23 / 5 = 25.45
2. Using the average of all the historical data as a forecast for the next period, compute the same three values. Round your answers to two decimal places.
Note: See part 2 of the attached excel file for the determination of Naïve and Calculations of Error, Error^2 and Error % using the average of all the historical data as a forecast for the next period.
From the attached excel file, we have:
MAE = 13.12 / 5 = 2.62
MSE = 55.55 / 5 = 11.11
MAPE = 97.94 / 5 = 19.59
3. Which method appears to provide the more accurate forecasts for the historical data?
The average of all the historical data provides the more accurate forecasts for the historical data comparing the values of its MAE, MSE and MAPE to the values of MAE, MSE and MAPE of Naive method. This is because the error values of the average of all the historical data are much lowest and more closest to the actual data.