A-AS Level (CIE) Business Studies Paper-1: Specimen Questions with Answers 21 - 22 of 50

Question 21


Write in Short

Short Answer▾

Compare the IRR and NPV


Compare the IRR and NPV
1.We determine the PV of future cash inflows and then subtract the initial cash outflow from them to obtain NPVWe calculate the rate at which NPV is zero or simply stated we calculate the rate of return on a project
2.Cost of Capital is used as the actual discount rateIRR is compared with cost of capital to determine if it is feasible to accept the project
3.Projects with positive NPV are acceptedProjects with IRR > cost of capital is accepted
4.NPV assumes cash flows are reinvested at cost of capitalIRR assumes cash flows are reinvested at IRR

Question 22


Describe in Detail


What are the different methods of Sales promotion?


Sales promotion comprises of the tools which are used to promote sales in each area. These are primarily short term in nature and are designed to quickly stimulate sales While advertising creates awareness and provides to the target consumer the rationale to buy a product, (sales promotion induces him/her to try/buy the product) In his sense, sales promotion is an incentive to buy. While discount coupons, price offers and free trials are directed at the final consumer, there are several promotions like merchandise allowance, incentive for shelf space, shelf display contests, joint promo- ions and other schemes, which are directed at the trade. In today՚s environment, both these types of promotions are necessary. Broadly, consumer promotions objective is to create consumer pull for the brand and trade promotions; objective is to push the brand in the market place.

The growing significance of sales promotion can be attributed to the following:

  • Growing: consumerism in India and an upwardly mobile Indian market.
  • Heightened inter firm rivalry within the industry and, in fact, in all sectors of the economy
  • Trade՚s resistance to invest additional resources in the product mix, of different companies This resistance is mainly because of most consumer companies enlarging their product mix to preempt competition and to satisfy different consumer needs.

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