Exam 11: Simulation Models

Which of the following functions is not an @RISK statistical function?

The RISKSIMTABLE function is used to summarize the results of a single simulation of product lifetime.

In bidding models,the simulation output variable is the number of competitors who will bid.

Exhibit 11-1 A company is considering investing $1.2M in a facility to manufacture a new product.The product will have a five year life,after which the facility will be shut down.A pro forma cash flow sheet for this project,with forecasted production levels,unit prices,and production costs,is shown below: -[Part 3] Refer to Exhibit 11-1.What is the standard deviation of the NPV? What does it indicate?

A key input variable in many marketing models of customer loyalty is the:

Exhibit 11-2 Suppose we want to choose capacity for a plant that will produce a new drug.In particular,we want to choose the capacity that maximizes discounted expected profit over the next 10 years.We have the following information: -[Part 2] Refer to Exhibit 11-2.Use a RISKSIMTABLE to with the following values for capacity: 20,000,25,000,30,000,35,000,40,000.Which of these capacities produces the largest expected NPV?

A tornado chart lets us see which random input has the most effect on a specified output in a financial model.

Exhibit 11-1 A company is considering investing $1.2M in a facility to manufacture a new product.The product will have a five year life,after which the facility will be shut down.A pro forma cash flow sheet for this project,with forecasted production levels,unit prices,and production costs,is shown below: -[Part 1] Refer to Exhibit 11-1.What is the deterministic next present value (NPV)of the project,including the required investment,assuming a 10% discount rate?

The main issue in marketing and sales models is:

In warranty cost models,the key input random variable is product lifetime.

Exhibit 11-2 Suppose we want to choose capacity for a plant that will produce a new drug.In particular,we want to choose the capacity that maximizes discounted expected profit over the next 10 years.We have the following information: -[Part 4] Refer to Exhibit 11-2.Are there any simulations which indicated there was a chance of getting negative NPV? Briefly explain in one sentence.

Which of the following is the most likely characteristic of a distribution that is to be used to develop a simulation model for estimating the time until failure of a product in a simulation model?

A marketing simulation model can be used to determine the expected profit under uncertain customer loyalty,but an optimization model must be used to determine the optimal amount to spend on increasing customer loyalty.

Value at risk (VAR)is an indicator of:

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

Exhibit 11-1 A company is considering investing $1.2M in a facility to manufacture a new product.The product will have a five year life,after which the facility will be shut down.A pro forma cash flow sheet for this project,with forecasted production levels,unit prices,and production costs,is shown below: -[Part 4] Refer to Exhibit 11-1.What does the distribution of the project NPV look like?

Which of the following is typically not an application of simulation models?

A @RISK output range allows us to obtain a summary chart that shows the entire simulated range at once.

In cash flow models,we are typically interested in investigating:

Exhibit 11-2 Suppose we want to choose capacity for a plant that will produce a new drug.In particular,we want to choose the capacity that maximizes discounted expected profit over the next 10 years.We have the following information: -[Part 3] Refer to Exhibit 11-2.Briefly explain why designing the plant for the expected capacity is clearly not the optimal solution.