Question

(All answers were generated using 1,000 trials and native Excel functionality.)

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 basecase, worst-case, and best-case scenarios.

If your answer is negative, use minus sign.

Best-case profit	$
Worst-case profit	$
Base-case profit	$

(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