Exam 16: Simulation Models

Suppose that a customer satisfaction firm approaches GM with a proposal to increase satisfaction from the current 80% rate to $85% through a low cost maintenance program that will cost GM $300 per customer.Would the program be worth it?

What is the appropriate distribution for the market growth rate?

Perform a simulation assuming the plant will be designed to meet the expected demand.What is the NPV in that case?

What is the standard deviation of the NPV? What does it indicate?

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

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.

In financial simulation models,the value at risk (VAR)is the 5^th percentile of an output distribution,and it indicates nearly the worst possible outcome.

Which of the following are not among the marketing applications of simulation?

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 we can tell:

Uncertain timing and the events that follow in process modeling can be modeled using IF statements.

Bidding for contracts is an example of which of the following types of simulation model application?

Now assume that the project has an abandonment option.At the end of each year you can abandon the project for the values given below: For example,suppose that year 1 cash flow is $400.Then at the end of year 1,you expect cash flow for each remaining year to be $400.This has an NPV of less than $6200,so you should abandon the project and collect $6200 at the end of year 1.Estimate the mean and standard deviation of the project with the abandonment option.How much would you pay for the abandonment option? (Hint: You can abandon a project at most once.Thus in year 5,for example,you abandon only if the sum of future expected NPVs is less than the year 5 abandonment value and the project has not yet been abandoned.Also,once you abandon the project,the actual cash flows for future years will 0.So the future cash flows after abandonment should disappear.)

A key objective in cash flow models is often to determine the amount of debt that must be taken out to maintain a minimum cash balance.

Suppose that Coke and Pepsi are fighting for the cola market.Each week each person in the market buys one case of Coke or Pepsi.If the person's last purchase was Coke,there is a 0.80 probability that this person's next purchase will be Coke; otherwise,it will be Pepsi.(We are considering only two brands in the market.)Similarly,if the person's last purchase was Pepsi,there is a 0.90 probability that this person's next purchase will be Pepsi; otherwise,it will be Coke.Currently half of all people purchase Coke,and the other half purchase Pepsi.Simulate one year of sales in the cola market and estimate each company's average weekly market share.Do this by assuming that the total market size is fixed at 100 customers.(Hint: Use the RISKBINOMIAL function.)

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? (Use the same values of , ,and as in Question 66.

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

The value at risk (VAR)is typically defined as the:

Which of the following is not among the financial applications where simulation can be applied?

What is the standard deviation of the ending balance? What does the distribution look like now? What should Amanda infer from this?

Considering your answers for Questions 78 through 83,please state how many units of capacity you think the plant should be built for and explain why.