Chapter $7$ covers a case study that models a decision Everglade Retirement Communities must make regarding a long$-$term or short$-$term loan. To complete this, the CFO, Julie Lee, must determine the best possible choice for the necessary loans over the next $10$ years. This might seem simple and straightforward. Oh$,$ how we wish this were the case. After completing the initial evaluation Julie and the owner, recognizes this model only considers current facility resident numbers. Julie is then asked to evaluate using a "what if$"$ analysis. to determine what could happen if resident numbers increase, or decrease.$$

A "what if analysis" is a systematic process used to explore potential outcomes of different scenarios, helping to predict and understand the effects of specific changes or uncertain events on a project or decision. This type of analysis allows decision$-$makers to assess the impact of variables and uncertainties on their objectives.

Key Features:

Scenario Exploration: It involves creating different hypothetical scenarios $($e$.$g$.,$ best$-$case, worst$-$case, or moderate situations$)$ and evaluating how they could influence the outcome.

Risk Assessment: It helps identify potential risks and the magnitude of their impacts on a project or decision.

Decision Support: By providing insights into possible future outcomes, it assists decision$-$makers in preparing for and mitigating risks.

Modeling Assumptions: It is often used in conjunction with tools like spreadsheets or specialized risk analysis software to model assumptions and analyze potential changes in key variables.

Without going into the details of the case study. Let's assume that the what$-$if analysis reflects a full$-$capacity retirement home does not provide enough income to help cover the long$-$term loans and balloon payment after the end of the $10-$year term. However, it does tell the story that a full retirement community can assist in the repayment of short$-$term loans, and a combination of both the long$-$term loan and several short$-$term loans is the most beneficial. I$\text{'}$m not going to ask you to calculate these numbers, nor do I want you actually to answer which loans are the best choice. What I am going to ask you is why it matters. Why does a CEO need to understand these numbers and the variables?$$