Assume that you recently received your MBA and now work as assistant to the CFO of a relatively large corporation. Your boss has asked you to prepare a financial forecast for the coming year, using an Excel model, and then to present your forecast to the firm’s executive committee. Describe how you would deal with the following issues.
a. Would you want to set up the model with a number of scenarios whose results could be presented to the executives?
b. What are “financing feedbacks,” and what are the pros and cons of incorporating such feedbacks into your model?
c. What are the pros and cons of assuming that all necessary outside funds are obtained from a single source (such as a bank loan) versus assuming that a mix of funds is raised so as to keep the capital structure at its target level?
d. What are the pros and cons of providing the capability to examine the results of changing dividend policy and capital structure policy as well as various operating policies such as credit policy, outsourcing policy, and so forth?
e. What does the acronym GIGO stand for, and how important is this for someone who is developing a financial model? For someone using a forecasting model? How might post-audits and incentive compensation plans help reduce GIGO?