CFA Level I · CFA Level I Exam · Introduction to Financial Statement Modeling
An analyst's model forecasts sales as a fixed 8% growth rate, and a sensitivity table shows that each 1 percentage point change in growth alters year-5 net income by 6%. Actual growth is 5%. Assuming the linear sensitivity holds, year-5 net income relative to the model is closest to:
Year-5 net income would be about 18% lower than modeled. Actual growth of 5% is 3 percentage points below the assumed 8%, and each point changes net income by 6%, so the shortfall is 3 × 6% = 18%. This shows how sensitive outputs are to one assumption.
- A18% lowerCorrect
- B12% lower
- C6% lower
Explanation
Growth is 3 percentage points below the assumption, and 3 × 6% = 18%, so net income is about 18% lower. Using only a 2-point gap gives 12%, and a 1-point gap gives 6%, both misreading the difference between 8% and 5%.
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