.Operations And Supply Chain Management Assignment Help – Corporation

.Operations And Supply Chain Management Assignment Help – Corporation

Question – What will your portfolio be worth in 10 years? In 20 years? When you stop working? The Human
Resources Department at Tri-State Corporation was asked to develop a financial planning model that
would help employees address these questions. Tom Gifford was asked to lead this effort and
decided to begin by developing a financial plan for himself. Tom has to lead this effort and decided to
begin by developing a financial plan for himself. Thom has a degree in business and, at the age of 25,
is making $34,000 per year. After two years of contributions to his company’s retirement program and
the receipt of a small inheritance, Tom has accumulated a portfolio valued at $14,500. Tom plans to
work 30 more years and hopes to accumulate a portfo …Read Morelio valued a $1 million. Can he do it?
Tom began with a few assumptions about his future salary, his new investment contributions, and his
portfolio growth rate. He assumed 5% annual salary growth rate as reasonable and wanted to make
new investment contributions at 4% of his salary. After some research on historical stock market
performance, Tom decided that a 10% annual portfolio growth rate was reasonable. Using these
assumptions, Tom developed the Excel workshop show in Figure 12.18. Tom’s specific situation and
his assumptions are in the top portion of the worksheet (cells D3:D8). The worksheet provides a
financial plan for the next five years. In computing the portfolio earnings for a given year, Tom
assumed that his new investment contribution would occur evenly throughout the year and thus half of
the new investment could be included in the computation of the portfolio earnings for the year. Using
Figure 12.18, we see that at age 29, Tom is projected t have a portfolio value at $32,898.
Tom’s plan was to use this worksheet as a template to develop financial plans, for the company’s
employees. The assumptions in cells D3:D8 would be different for each employee, and rows would be
added to the worksheet to reflect the number of years appropriate for each employee. After adding
another 25 rows to the worksheet, Tom found that he could expect to have a portfolio of $627,937
after 30 years. Tom than took his results to show his boss, Kate Regale.
Although Kat was pleased with Tom’s progress, she voiced several criticisms. One of the criticisms
was the assumption of a constant annual salary growth rate. She noted that most employees
experience some variation in the annual salary growth rate from year to year. In addition, she pointed
out that the constant annual portfolio growth rate was unrealistic and that the actual growth rate would
vary considerably for year to year. She further suggested that a simulation model for the portfolio
projection might allow Tom to account for the random variability in the salary growth rate and the
portfolio growth rate.
After some research, Tom and Kate decided to assume that the annual salary growth rate would vary
from 0% to 10 % and that a uniform probability distribution would provide a realistic approximation.
Tri-State’s account firm suggested that the annual portfolio growth rate could be approximated by a
normal probability distribution with a mean of 10% and a stand deviation of 5%. With this information,
Tom set off to develop a simulation model that could be used by the company’s employees for
financial planning.
Figure 12.18 Financial Planning W orksheet for Tom Gifford (this appear in Excel in textbook)
A B C D E F G H
1 Financial Analysis Portfolio Projection
2
3 Age 25
4 Current Salary $34,000
5 Current Portfolio $14,500
6 Annual Salary Growth Rate 5%
7 Annual Investment Rate 4%
8 Annual Portfolio Growth Rate 10%

9
10 Beginning New Portfolio Ending
11 Year Age Portfolio Salary Investment Earning Portfolio
12 1 25 14,500 34,000 1,360 1,518 17,378
13 2 26` 17,378 35…


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