University of the Incarnate WordPMBA 6312. Problem Set 3 2019 v.2. PMBA 6312 Quantitative Methods / Research.

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CHAPTER 16 Question 1. The management of Brinkley Corporation is interested in using simulation to estimate the profit per unit for a new product. The selling price for the product will be $45 per u... nit. Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows: a. Compute profit per unit for the base-case, worst-case, and best-case scenarios. Therefore the profit per unit for the base-case scenario is $7 Therefore the profit per unit for the worst-case scenario is $3 Therefore the profit per unit for the best-case scenario is $12 b. Construct a simulation model to estimate the mean profit per unit. The mean profit is 11.01 Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios? d. Management believes the project may not be sustainable if the profit per unit is less than $5. Use simulation to estimate the probability the profit per unit will be less than $5. Question 5. To generate leads for new business, Gustin Investment Services offers free financial planning seminars at major hotels in Southwest Florida. Gustin conducts seminars for groups of 25 individuals. Each seminar costs Gustin $3500, and the average first-year commission for each new account opened is $5000. Gustin estimates that for each individual attending the seminar, there is a 0.01 probability that he/she will open a new account. a. Determine the equation for computing Gustin’s profit per seminar, given values of the relevant parameters. b. What type of random variable is the number of new accounts opened? Hint: Review Appendix 16.1 for descriptions of various types of probability distributions. c. Construct a spreadsheet simulation model to analyze the profitability of Gustin’s seminars. Would you recommend that Gustin continue running the seminars? d. How large of an audience does Gustin need before a seminar’s expected profit is greater than zero? [Show More]

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