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Exhibit 9.16 Scenario summary for mortgage problem
Padcha believes she would like to generate the highest interest deduction possible,
she may consider either scenarios E or F. If more modest interest deductions are
more appealing, then scenarios B and C are possible. Regardless, she has the entire
array of possibilities to choose from, and she may be able to generate others based
on the results she has observed, for example the Current Values shown in column D.
This ability to manage multiple scenarios is a very attractive feature in spreadsheet
9.4.2 Example 2—An Income Statement Analysis
We now consider a slightly more complex model for scenario analysis. In this exam-
ple, we consider a standard income statement and a related set of scenarios that
are provided by a decision maker. The decision maker would like to determine the
bottom-line (net profit) that results from various combinations of input values. In
Exhibit 9.17 we can see that we have 7 input variables and each variable has two
possible values. This is not a particularly complex problem, but with a greater num-
ber of possible input values, this problem could easily become quite cumbersome.
The 7 input values represent standard inputs that are often estimated in proforma
Income Statement analysis:
Sales Revenue
(percentage 4 )(Sales Revenue)
Variable Operating Expense
(percentage)(Sales Revenue)
Fixed Operating Expenses
Depreciation Expense
Interest Expense
4 The estimation of Cost of Goods Sold (COGS) and Variable Operating Expense as a percentage
(%) of Sales Revenue is common approach to estimation of Income Statements, but not an approach
without its detractors.
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