Part 2 (Links to an external site.):
The CFO of Performance Lawn Equipment, J. Kenneth Valentine, would like to have a model to predict the net income for the next 3 years. To do this, you need to determine how the variables in the pro forma income statement will likely change in the future.
Using the calculations and worksheet that you developed along with other historical data in the database, estimate the annual rate of change in sales revenue, cost of goods sold, operating expense, and interest expense.
Use these rates to modify the pro Forma income statement to predict the net income over the next 3 years.
Because the estimates you derived from the historical data may not hold in the future, conduct appropriate what-if, scenario, and/or parametric sensitivity analyses to investigate how the projections might change if these assumptions don’t hold.
Construct a tornado chart to show how the assumptions impact the net income in your model.
Summarize your results and conclusions in a report to Mr. Valentine.
