Question

hi i don't understand for question b #3 & 4

Having thought about Mr. James’s suggestion, you consider several options as an estimate of lost profits. These include 1) the full year, 2) the last six months only, 3) a weighted average that gives twice the weight to the last six months as to the first six months, or 4) some other weighted average. Which method do you think gives the most accurate estimate of lost profits?

Answer 1

Answer:

In the question, several options could be considered as an estimate of lost profits, like the following:

1) the full year: Data for the entire year could be considered for estimation.

2) the last six months : Data for the half-year could be considered for estimation.

3) weighted average that gives twice the weight to the last six months as to the first six months: This implies that the most current months should be given more weight as compared to the first six months. This could mean that the most recent trend could be most relied upon and that should play a more vital role as compared to the first six months, since the most recent data is always said to give more accurate results. Thus, weights are assigned in ratio 2:1 to the last six months and first six months respectively.

4) some other weighted average: Similarly, instead of the ratio as discussed in point (3), some other weights could be assigned depending on a case to case basis.

Conclusion:

In my view, weighted average Grooves the most accurate estimate of lost profits as per point (3), since it rightly determines the importance of considering most recent trends.