IN THIS CHAPTER
A what-if example
Types of what-if analyses
Manual what-if analyses
Creating one-input and two-input data tables
Using Scenario Manager
One of the most appealing aspects of Excel is its ability to create dynamic models. A dynamic model uses formulas that instantly recalculate when you change values in cells that are used by the formulas. When you change values in cells in a systematic manner and observe the effects on specific formula cells, you're performing a type of what-if analysis.
What-if analysis is the process of asking such questions as "What if the interest rate on the loan changes to 7.5 percent rather than 7.0 percent?" or "What if we raise our product prices by 5 percent?"
If you set up your worksheet properly, answering such questions is simply a matter of plugging in new values and observing the results of the recalculation. Excel provides useful tools to assist you in your what-if endeavors.
Figure 36.1 shows a simple worksheet model that calculates information pertaining to a mortgage loan. The worksheet is divided into two sections: the input cells and the result cells (which contain formulas).
This workbook is available on the companion CD-ROM. The filename is mortgage loan.xlsx.
With this worksheet, you can easily answer the following what-if questions:
What if I can negotiate a lower purchase price on the property?
What if the lender requires a 20-percent down payment? ...