Bautista, Ariston III O.
BSA 2A
1. Why is quantitative analysis important in financial decision-making? Give at least
two examples where numbers provide better guidance than intuition
Quantitative analysis is important because it gives exact results. For example, if a
company wants to choose between two projects, comparing their Net Present Value
(NPV) is better than just guessing which one looks more profitable. Another example
is in budgeting—using sales and expense data is more reliable than relying on
intuition.
2. Discuss the time value of money concept. Why is ₱1 today more valuable than ₱1
received in the future? How does this concept affect investment decisions?
₱1 today is more valuable than ₱1 in the future. This is because of inflation, which
makes money lose value over time, and because of earning potential, since today’s
money can already be invested to earn interest. This is why investors want projects that
give earlier returns.
3. Explain the difference between simple interest and compound interest. In real
business situations, why is compound interest more commonly used?
Simple interest is only based on the original amount, while compound interest is
“interest on interest,” meaning past interest is added to the principal. Businesses
prefer compound interest because it reflects reality—investments, loans, and
savings usually grow through compounding.
4. In capital budgeting, why do managers use techniques such as Net Present Value
(NPV) and Internal Rate of Return (IRR) instead of relying only on payback period?
The payback period only shows how fast money is recovered, but it ignores long-
term profits. NPV measures today’s value of future cash inflows minus the
investment cost. If NPV is positive, the project adds value. IRR shows the project’s
expected rate of return. Managers use NPV and IRR because they consider both
time value of money and profitability.
5. Discuss the role of quantitative analysis in evaluating risk and return. How can
statistical tools (e.g., standard deviation, coefficient of variation) help in investment
decisions?
Quantitative analysis helps measure the balance between risk and return. Standard
deviation shows how much returns change, while the coefficient of variation
compares risk relative to return. These tools guide investors in choosing safe or risky
investments depending on their goals.
6. Financial ratios are widely used in quantitative analysis. Choose one liquidity ratio
and one profitability ratio, and explain how they guide managers in decision-making.
A liquidity ratio like the Current Ratio (Current Assets ÷ Current Liabilities) shows if a
business can pay its short-term debts. A profitability ratio like Net Profit Margin (Net
Income ÷ Sales) shows how much profit comes from sales. Managers use these
ratios to check stability and efficiency.
7. What is sensitivity analysis in financial management? How does it help decision-
makers deal with uncertainty in their assumptions?
Sensitivity analysis tests how results change if assumptions change. For example, if
sales drop by 10%, how will profit be affected? This helps managers prepare for
uncertainties and decide if a project is still good under different conditions.
8. Explain how linear programming or quantitative techniques can be applied in
resource allocation for a company. Give a simple example
Companies often have limited resources like time, materials, or labor. Linear
programming helps find the best mix to maximize results. For example, a factory
with limited hours can calculate how many units of Product A and B to produce to
get the highest profit.
9. Discuss how quantitative analysis can be misused or lead to wrong decisions if the
assumptions behind the numbers are unrealistic. Provide an example scenario.
Numbers can mislead if assumptions are wrong. For example, if a company
assumes sales will grow 30% every year without studying the market, it might over-
invest and lose money. Quantitative analysis is only useful if based on realistic
assumptions.
10. As a future accountant or finance professional, how will you balance the use of
quantitative analysis with qualitative judgment in making financial decisions?
As a future accountant, I will use quantitative analysis because numbers show
facts. But I will also consider qualitative factors like customer needs, employee
performance, and market conditions. The best financial decisions should balance
both.
