Develop a worksheet simulation for the following problem. The management of Acme
ID: 3227618 • Letter: D
Question
Develop a worksheet simulation for the following problem. The management of Acme Manufacturing Company is considering the introduction product. The fixed cost to begin the production of the product is $30,000. The variable cost for product between $16 and $24 per unit. Demand the product is described by a normal distribution with a mean of 1200 units and a standard deviation of 300 units. Use 500 simulation trials to answer the following questions. (a) What is the mean profit for the simulation? (b0 Create a histogram showing the profit distribution. (Remember you learned how to create histograms back in Ch. 2.) (c) What is the probability the project will result in a loss? (d) What is the value at risk (at 5%)? (e) What is your recommendation concerning the introduction of the product?Explanation / Answer
Below is the my drive link of excel worksheet simulator ( File is large that's why I am pasting the link).
https://drive.google.com/file/d/0B22UuC83GNeRMjZsZEpvYTNWbG8/view?usp=sharing
Answer of part (a) :- The mean profit for the simulation (the first time I ran it) was $5790.97 (The simulation changes every time the spreadsheet is updated due to random number formulas).
Answer of part (c) :- According to the simulation, there's a 29% chance of a loss. For each trial in the simulation, I looked to see if the profit was less than 0. Then I divided the number of losses by 500, the total number of trials. Each time I run the simulation, I get a probability of between 29% and 32% probability of loss.
Answer of part (e) :- In my opinion, the project is not worthwhile from a purely financial point of view.The expected value OVER TIME is about $5700 per trial. However, 29% of the time the project will result in a loss.That means that there is substantial risk associated with it, especially if only one product is to be introduced.However, if the manufacturing company is considering introducing a range of products with similar risk/profit profiles, then each might be worthwhile.There'll be a certain percentage of losers (about 29%) but the winners should more than make up for them.
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