Quantitative and qualitative assumptions used to draw up cash flow projections.

Question You are the owner of Solid Oak Corp., a producer of high-end household furniture. Analysts predict that the market for high-end household furniture will grow by 3% to 4% per year in the next 10 years. Your chief financial officer (CFO) has produced a forecast of your firm’s cash flows. The table in the next sheet (Solid Oak CF forecast) shows data for Solid Oak from last year (2017) and the CFO’s forecasts for 2018 to 2025. After a quick look at the numbers, you suspect that your CFO may have been too aggressive with her assumptions. Question 1 Assess whether the assumptions made by your CFO are reasonable and internally consistent. Do some of the assumptions raise concerns? If so, why? Your task is to tease out the assumptions the CFO has made, assess whether they are reasonable, and verify that they are internally consistent To answer this question, examine what her forecasts assume about Solid Oak’s market share and about the evolution of Solid Oak’s margins and operational performance. Consider calculating gross margins, EBIT margins, and several of the measures of operational performance, forecasting investment performance and capital expenditure, all the main forecasting you learnt about in Module 1 (inventory period, collection period, payable period, etc.)