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Exam 16: Simulation Models

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Question 41

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We can use the RISKSIMTABLE function to summarize the results of a single simulation of product lifetime.

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Question 42

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Given the information in the pro forma, the NPV, and the risk of a loss, would you invest in this project?

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Student answers will vary.
Although this...

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Question 43

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Which two random variables are typically simulated as inputs in bidding models?

Suppose this new drug will cost $3 million to develop. What is the chance that we could loose money on this project?

Suppose we compare the difference between the NPV of a financial model in which the means are entered for all input random variables and the NPV of a financial model in which the most likely values are entered for all input random variables. A large difference between the NPV's demonstrate:

Which of the following functions is not appropriate in cases where a single simulation is run?

Develop an @RISK model to estimate the NPV given an assumed capacity. What are the variable inputs and outputs?

In financial simulation models, we are typically more interested in the expected NPV of a project than in the extremes of the outcomes.

Assume = 0.10, = 0.15, and = 0.20. Suppose a 1% increase in market share is worth $10,000 per week to company A. Company A believes that for a cost of $1 million per year it can cut the percentage of unsatisfactory juice cartons in half. Is this worthwhile?

Suppose we have a 0-1 output for whether a bidder wins a contract in a bidding model (0=bidder does not win contract, and 1=bidder wins contract) . From the mean of this output, what can we determine?

In investment models, a useful approach for generating future returns and inflation factors from historical data is:

Which function is not an @RISK statistical function?

Perform a simulation assuming the plant will be designed to meet the expected demand. Use RISKSIMTABLE with a range of possible values to help the firm decide what the plant capacity should be. Which simulation has the most risk as measured by spread or dispersion in the data? Please state clearly what statistic you used to answer this question.

Perform a simulation assuming the plant will be designed to meet the expected demand. Use RISKSIMTABLE with a range of possible values to help the firm decide what the plant capacity should be. Briefly explain why designing the plant for the expected capacity is clearly not the optimal solution.

What is an example of a financial application in which simulation cannot be applied?

Estimate the mean and standard deviation of the NPV of this project. Assume that cash flows are discounted at a rate of 10% per year.

Which function is often required in simulations where we must model a process over multiple time periods and take the uncertain timing of events into account?

Although we can determine the optimal bid and the expected profit from that bid in a bidding simulation, we usually cannot determine the probability of winning.

The primary objective in simulation models of bidding for contracts is to determine the optimal bid.

In marketing models of customer loyalty, we are typically interested in modeling the rate of customer retention, called churn.