Question

The management of Madeira Computing is considering the introduction of a wearable electronic device with the functionality of a laptop computer and phone. The fixed cost to launch this new product is $300,000. The variable cost for the product is expected to be between $160 and $240, with a most likely value of $200 per unit. The product will sell for $300 per unit. Demand for the product is expected to range from 0 to approximately 20,000 units, with 4,000 units the most likely. (a) Develop a what-if spreadsheet model computing profit for this product in the base case, worst-case, and best-case scenarios. If your answer is negative, use minus sign. Best-case profit $ 2500000 Worst-case profit $ -300000 Base-case profit $ 100000 (b) Model the variable cost as a uniform random variable with a minimum of $160 and a maximum of $240. Model product demand as 1,000 times the value of a gamma random variable with an alpha parameter of 3 and a beta parameter of 2. Construct a simulation model to estimate the average profit and the probability that the project will result in a loss. Round your answers to the nearest whole number. Average Profit $ Probability of a Loss %

Answer 1

Answer:

Average profit = $314,132

Probability of lost = 0.21

Explanation:

a. Question a ask us to develop a what-if spreadsheet model computing profit for this product in the base-case, worst-case, and best-case scenarios.

Best Case Profit = $2,500,000; Worst Case Profit = -$300,000; Base Case Profit = $100,000b.Model the variable cost as a uniform random variable with a minimum of $160 and a max of $240. Model product demand as 1,000 times the value of a gamma random variable with an alpha parameter of 3 and a beta parameter of2. We asked to construct a simulation model to estimate the average profit and the probability that the project will result in a loss. As shown in the Excel output calculation done in the excel, we have the mean profit is about = $314,132, we have the probability that the product will lead to a loss is as 0.21.