Predicted incremental value of future cash

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Apply financial analyses to business planning and decision making. Instead of assessing against the predicted incremental value of future cash flows, companies should consider strategic decisions regarding the expected impact on reported earnings. The weighted average value for a set of all possible scenarios is called the expected value. To calculate it, multiply the value-added for each scenario by the probability that that scenario will materialize, then sum up the results. A sound strategic analysis by a company's operating units should produce informed responses to three questions:

Will alternative strategies affect value?

Which method is most likely to provide the maximum profit?

If the selected strategy, how sensitive is the value of the most likely scenario to potential shifts in competitive dynamics and assumptions about technology life cycles, the regulatory environment, and other relevant variables?

Reference no: EM132935581

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