Assignment 1: Creating A Spreadsheet For Decision Support

Assignment 1 Creating A Spreadsheet For Decision Supportin This Assig

In this assignment, you will produce a comprehensive spreadsheet model that simulates the financial and operational aspects of Electric Car's business over a three-year period from 2018 to 2020. The spreadsheet will include components such as constants, inputs, summaries of key results, detailed calculations, income and cash flow statements, and debt management. You are provided with a skeleton spreadsheet to facilitate the setup process, which can be accessed via your data files.

The model demands an analysis of factors influencing units sold, including market momentum, gasoline prices, and charger locations, with corresponding effects on sales for sports cars and family sedans. The model requires calculations of units sold, selling prices, unit costs, and profitability, all driven by these variables. Additionally, the cash flow forecast must start with opening cash and account for income, expenses, investments, loan repayments, and ending cash position each year.

Furthermore, the model must incorporate scenario analysis for decision-making, evaluating options such as maintaining current operations, accepting different bank loans with varying growth assumptions, or accepting a buyout offer. The scenario analysis will be implemented with the Scenario Manager, allowing for a comparative review of the financial outcomes and feasibility under each scenario, including assessing whether Steve can meet his retirement income goals.

Paper For Above instruction

The financial modeling of Electric Car's business over the period 2018–2020 necessitates a detailed and dynamic spreadsheet that captures the complexities of sales, costs, investments, and debt management. Developing this model involves creating interconnected components, beginning with the constants and inputs that define the business environment and strategic assumptions. These foundational elements inform the calculations that project sales volumes, pricing strategies, and costs, providing a comprehensive view of the company's operational and financial performance.

One critical aspect of this modeling process is the estimation of units sold, which depends on various factors. Market momentum contributes a steady increase year-over-year, while gas price fluctuations have a conditional impact—if gasoline prices decrease, sales tend to decline by a fixed percentage; if they increase, sales are positively affected. Charger locations also influence sales, with an increased number of stations providing additional sales uplift based on thresholds (greater than 100 locations yields a 5% boost, between 76 and 100 creates a 3% increase, and so forth). These effects are summed to derive the total percentage change in units sold annually.

The calculation of sales volume is time-dependent: units sold in each year are based on the prior year's sales multiplied by (1 + total percentage change). Sales prices for sports cars and family sedans are similarly impacted by market trends, gas prices, and charger infrastructure, with adjustments made to the prior year's prices according to specified percentage effects. The model must dynamically calculate these selling prices annually, incorporating market effects, gas price effects, and charger effects in a cumulative manner.

Unit costs are projected to decrease over time due to cost reduction factors, which are also incorporated into the model. The costs for both sports cars and family sedans are based on the previous year's costs adjusted by these reduction rates, capturing economies of scale and efficiency gains. Revenue generation is modeled as the product of projected sales volumes and selling prices. The spreadsheet must then consolidate revenues from different vehicle types and derive total income before expenses.

The income statement within the model will derive net income after taxes, using the specified tax rate. The cash flow section tracks beginning cash, additions from net income, and deductions for capital expenditures, loan payments, and other expenses. The ending cash balance for each year emerges from these calculations. The debt section models borrowing and repayment schedules, ensuring that total debt levels are accurately represented and correlated with cash flow and investment needs.

To enable strategic decision support, the model incorporates scenario analysis through the Scenario Manager feature. This allows testing of different strategic options: maintaining current operations with sales decline, accepting various loan proposals with differing growth projections, or accepting a buyout offer and ceasing operations. Each scenario affects inputs such as customer base growth, loan size, and revenue assumptions, thereby impacting the projected cash flow, profitability, and the ability to meet retirement savings goals.

Ultimately, this detailed financial model provides Electric Car's management with valuable insights into the viability of current strategies and potential alternatives. It supports data-driven decisions by demonstrating the financial outcomes of various business strategies, highlighting the risks and opportunities associated with each scenario, and enabling optimal planning for sustainable growth and retirement preparedness.

References

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