PAD 505 Week 5 Discussion 2 Cost-Benefit Analysis

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Week 5 Discussion 2

5

“Cost-Benefit Analysis” Please respond to the following:

From second e-Activity (Parts 1–IV), assume that you submitted your analysis that recommended Project A to your superior. She, however, negated your analysis and chose Project B. Support your recommendation with at least two (2) reasons for accepting the financial implications of Project A. Discuss at least one advantage and one disadvantage of ex ante analysis and ex post analysis. Justify your answer with examples.

 I would tell my supervisor that Project A meets all requirements for the internal rate of return, net present value and the payback period is almost three years less than Project B. A monetary savings would be recognized with Project A because you are paying the project off in a shorter period of time.

Discuss at least one (1) advantage and one (1) disadvantage of ex ante analysis and ex post analysis. Justify your answer with examples.

 “Ex-ante” refers to any prediction that is made prior to either before all of the variables are known, or generally before an event occurs. For example, an ex-ante price on a stock is an informed estimate functioning as a prediction of future events when not all variables are known. It provides for a predictive model, allowing for the uncertainty surrounding current conditions or any unknown factor that may change the outcome.

In general finance, company earnings may be predicted ex ante. Often, this involves examining current known financial data and extrapolating by considering anticipated activity and previous experiences. For example, a company may note an ex-ante rise in sales due to the release of a new model of one of its products. Ex-ante predictions can apply to anticipated gains or losses, as the term is neutral in regards to the nature of the event.

Companies attain ex-post data to forecast future earnings. Ex-post data is utilized in studies such as value at risk (VaR), a probability study that approximates the maximum amount of loss an investment portfolio may incur on any day. VaR is defined for a specified investment portfolio, probability and time horizon.

Ex-post yield differs from ex-ante yield because it represents actual values, essentially what investors earn rather than estimated values. Investors base their decisions on expected returns versus actual returns, which is an important aspect of an investment’s risk analysis. Ex-post is the current market price, minus the price the investor paid. It shows the performance of an asset; however, it excludes projections and probabilities.

http://www.investopedia.com/terms




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