Managerial Report
Play the role of Tom Gifford and develop a simulation model for financial planning. Write a report for Tom’s boss and, at a minimum, include the following:

1. Without considering the random variability in growth rates, extend the worksheet 20 years. Confirm that by using the constant annual salary growth rate and the constant annual portfolio growth rate, Tom can expect to have a 20-year portfolio of $772,722. What would Tom’s annual investment rate have to increase to in order for his portfolio to reach a 20-year, $1,000,000 goal? (Hint: use goal seek)

2. Redesign the spreadsheet model to incorporate the random variability of the annual salary growth rate and the annual portfolio growth rate into a simulation model. Assume that Tom is willing to use the annual investment rate that predicted a 20-year, $1,000,000 portfolio in part 1. Show how to simulate Tom’s 20-year financial plan. Use results from the simulation model to comment on the uncertainty associated with Tom reaching the 20-year, $1,000,000 goal. Discuss the advantages of repeating the simulation numerous times.

3. What recommendations do you have for employees with a current profile similar to Tom’s after seeing the impact of the uncertainty in the annual salary growth rate and the annual portfolio growth rate?

4. Assume that Tom is willing to consider working 25 years instead of 20 years. What is your assessment of this strategy if Tom’s goal is to have a portfolio worth $1,000,000?

5. Discuss how the financial planning model developed for Tom Gifford can be used as a template to develop a financial plan for any of the company’s employees.

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