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In this unit, you have learnt about the importance of realistic forecast assumptions, and how these assumptions can alter the outputs of a financial model.
In this unit, you have learnt about the importance of realistic forecast assumptions, and how these assumptions can alter the outputs of a financial model. This is particularly true for forecasts that project far into the future. A hypothetical management consulting company, Always Write Inc., created a financial forecast with a 10-year horizon. However, it failed to factor realistic foreign exchange price fluctuation estimates into its model, and only allowed for minor fluctuations, even though the local currency was showing signs of weakness. Instead of hedging its foreign exchange risk, Always Write Inc. trusted the results of its model. The foreign exchange prices moved against it, which resulted in the company falling short of its revenue targets. In this small group discussion, detail the potential compounding effects of incorrect assumptions in financial models, and what impacts these could have on a firms bottom line. Provide a scenario detailing these impacts
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