Question

You are given the following information about an investment project: i) A project requires an investment of 4,000,000. ii) The project develops a product which will be sold perpetually at a constant level. iii) Units sold per year are modeled using an exponential distribution with mean 150,000. iv) Price per unit is uniformly distributed on [20, 40]. v) The cost of capital has a normal distribution with parameters $\mu = 0.2$, $\sigma^2 = 0.0036$. A simulation run uses the following uniform numbers on [0, 1): 0.5 for units sold, 0.7 for price per unit, 0.1 for cost of capital. Calculate the NPV for this run.

          You are given the following information about an investment project:
i) A project requires an investment of 4,000,000.
ii) The project develops a product which will be sold perpetually at a constant level.
iii) Units sold per year are modeled using an exponential distribution with mean 150,000.
iv) Price per unit is uniformly distributed on [20, 40].
v) The cost of capital has a normal distribution with parameters $\mu = 0.2$, $\sigma^2 = 0.0036$.
A simulation run uses the following uniform numbers on [0, 1): 0.5 for units sold, 0.7 for price per
unit, 0.1 for cost of capital.
Calculate the NPV for this run.

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You are given the following information about an investment project:
i) A project requires an investment of 4,000,000.
ii) The project develops a product which will be sold perpetually at a constant level.
iii) Units sold per year are modeled using an exponential distribution with mean 150,000.
iv) Price per unit is uniformly distributed on [20, 40].
v) The cost of capital has a normal distribution with parameters μ = 0.2, σ^2 = 0.0036.
A simulation run uses the following uniform numbers on [0, 1): 0.5 for units sold, 0.7 for price per
unit, 0.1 for cost of capital.
Calculate the NPV for this run.

Added by Shawn R.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

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Solved by Expert Kinjal G

Step 1

The revenue generated per year can be calculated by multiplying the units sold per year by the price per unit. Since the units sold per year is modeled using an exponential distribution with a mean of 150,000, we can use the inverse of the cumulative distribution Show more…

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You are given the following information about an investment project: i) A project requires an investment of $4,000,000. ii) The project develops a product which will be sold perpetually at a constant level. iii) Units sold per year are modeled using an exponential distribution with a mean of 150,000. iv) Price per unit is uniformly distributed on the interval [20, 40]. v) The cost of capital has a normal distribution with parameters Î¼ = 0.2 and Ïƒ^2 = 0.0036. A simulation run uses the following uniform numbers on [0,1]: 0.5 for units sold, 0.7 for price per unit, and 0.1 for the cost of capital. Calculate the NPV for this run.

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