Since the early 1990s, woodstove sales have declined from 1,200,000 units per year to approximately 100,000 units per year. The decline has occurred because of
(1) Stringent new federal EPA regulations, which set maximum limits on stove emissions beginning in 1992;
(2) Stable energy prices, which reduced the incentive to switch to woodstoves to save on heating costs; and
(3) Changes in consumers’ lifestyles, particularly the growth of two-income families.
During this period of decline in industry sales, the market was flooded with woodstoves at distressed prices as companies closed their doors or liquidated inventories made obsolete by the new EPA regulations. Downward pricing pressure forced surviving companies to cut prices, output, or both. Years of contraction and pricing pressure left many of the surviving manufacturers in a precarious position financially, with excessive inventory, high debt, little cash, uncollectible receivables, and low margins.

a. Identify clues from the financial statements and financial statement ratios for Year 3– Year 7 that might suggest that Massachusetts Stove Company is in a mature business.
b. Design a spreadsheet for the preparation of projected income statements, balance sheets, and statements of cash flows for MSC for Year 8–Year 12. Also forecast the financial statements for each of these years under three scenarios:
(1) Best case,
(2) Most likely, and
(3) Worst case.
The following sections describe the assumptions you can make.