The Wilson Company Is Interested in Forecasting Demand for Its

question 34

Multiple Choice

The Wilson Company is interested in forecasting demand for its XG-667 product for quarter 13 based on 12 quarters of data. The following shows the data and the double exponential smoothing model results for periods 1-12 using alpha = 0.20 and beta = 0.40 Based on this information, what is the difference between the forecast for period 13 using smoothing constants of alpha = 0.20 and beta = 0.40 and smoothing constants of alpha = 0.10 and beta = 0.30? (Assume that the starting values for period 0 are C = 745 and T = 32.)

• A) About 108 units
• B) Approximately 9 units
• C) Just under 32 units
• D) About 85 units

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Definitions:

Flexibility Option

An investment option that provides the holder with the ability to respond to changes in the financial market or business environment.

Surrogate Beta

Surrogate beta is a method used in finance to estimate the beta of a project or investment by using the beta of a similar, publicly traded company or project as a proxy.

Pure Play Method

A valuation technique that involves comparing the firm of interest to another company that has a single line of business similar to the target company.

Real Option

The right, but not the obligation, to undertake certain business initiatives, such as deferring, abandoning, expanding, staging, or contracting a project at a future date.