Question

You are given the following sample of daily net cash flows?

Day-NCF
1-$55,000
2-$65,000
3-$68,000
4-$80,000
5
a) what will be your forecast in period 5, using 2-day moving average
b) what will be your forecast in period 5, using 3-day moving average
c) If the actual cash flow in day 5 is 72,000, determine which method provides the better forecast? Provide a proof.

Answer 1

a) The forecast in period 5 using a 2-day moving average is $74,000. b) The forecast in period 5 using a 3-day moving average is $71,000. c) The 3-day moving average provides a better forecast when the actual cash flow in day 5 is $72,000.

Step-by-step explanation:

a) To calculate the forecast in period 5 using a 2-day moving average, we need to add the net cash flows from days 3 and 4 and divide by 2. (68,000 + 80,000)/2 = 74,000. Therefore, the forecast in period 5 using a 2-day moving average is $74,000.

b) To calculate the forecast in period 5 using a 3-day moving average, we need to add the net cash flows from days 2, 3, and 4 and divide by 3. (65,000 + 68,000 + 80,000)/3 = 71,000. Therefore, the forecast in period 5 using a 3-day moving average is $71,000.

c) To determine which method provides the better forecast, we compare the actual cash flow in day 5 (72,000) to the forecasts from the 2-day moving average (74,000) and the 3-day moving average (71,000). Both forecasts are close to the actual value, but the forecast from the 3-day moving average is closer, indicating that it provides a better forecast in this case.