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25 January, 14:40

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?

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  1. 25 January, 14:48
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    The most accurate estimate of lost profits is

    3) a weighted average that gives twice the weight to the last six months as to the first six months

    Explanation:

    In this case, after Mr James' suggestions, I consider several options as an estimate of lost profits, which are:

    1) The full year: In this case the the entire data for the year would be considered for estimation.

    2) The last six months: Here, half of the year's data would be considered for estimation.

    3) Weighted average that gives twice the weight to the last six months as to the first six months: This means that the data for the most recent months should be given more weight more than the first six months. It means that the most recent data would be more accurate than that of the first 6months, and the most recent data should be trusted more than the data of the previous 6 months.

    Here, a ratio of 2:1 is used to assign weight to the last six months and first six months respectively.

    4) Some other weighted average: This is similar to option 3 not same ratio is used, but some other weights could be assigned depending on other factors.

    Therefore, the weighted average gives the most accurate estimate of lost profits as in option (3) because it considers the most recent data.
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