CAPITAL BUDGETING: SIMULATION

AN AMAZON MAILING CENTER IS CONSIDERING USING A NEW SCALE, MORE ACCUR

SAVINGS = $250 PER YEAR
THE SCALE'S USEFUL LIFE IS A DISCRETE UNIFORM DISTRIBUTION FROM 12 YEARS TO
THE INITIAL SCALE COST IS ESTIMATED TO BE A NORMAL DISTRIBUTION WITH MEAN

A) SIMULATE 500 RANDOM SAMPLES AND COMPUTE THE EXPECTED RATE OF RETURN
GIVEN THE FOLLOWING TABLE:

FORMULA BOX
NORM DIST ---- > COST= (1,431.32)
UNIFORM DIST ---> USEFUL LIFE= 13
ANNUAL SAVINGS= 250
SALVAGE VALUE= 0
IRR= 14.44%

B) AMAZON EXPECTS A RATE OF RETURN ON THIS

INSTALL TO BE > 12%
WHAT IS THE PROBABILITY OF THAT EVENT ?
451 -1176.2019369 16 #NUM!
``
NEW SCALE, MORE ACCURATE WHICH WILL REDUCE ERROR.

UTION FROM 12 YEARS TO 16 YEARS ( USE THE EXCEL RANDBETWEEN(12,16 ) FUNCTION)

DISTRIBUTION WITH MEAN = $1500 AND STANDARD DEVIATION = $150

PECTED RATE OF RETURN (FIND IRR USING EXCEL RATE FUNCTION) AND ITS STANDARD DEVIATION

ITERATION COST= USEFUL LIFE= IRR=

(1,431.32) 13 14.44% MEAN=
1 (1,516.13) 12 12.46% STDEV=
2 (1,145.62) 12 19.16%
3 (1,266.85) 16 18.41%
4 (1,508.82) 15 14.35%
5 (1,447.56) 16 15.56% PROB(IRR>12%)=
6 (1,417.07) 14 15.21%
7 (1,417.04) 14 15.21%
8 (1,607.19) 15 13.10%
9 (1,724.35) 16 12.20%
10 (1,376.37) 15 16.27%
11 (1,553.59) 12 11.93%
12 (1,712.65) 12 9.89%
13 (1,419.82) 15 15.61%
14 (1,664.54) 14 11.91%
15 (1,494.68) 14 14.08%
16 (1,661.34) 14 11.95%
17 (1,294.54) 12 16.09%
18 (1,258.72) 14 17.87%
19 (1,695.99) 13 10.90%
20 (1,336.17) 12 15.33%
21 (1,475.15) 14 14.36%
22 (1,555.47) 13 12.66%
23 (1,729.78) 14 11.17%
24 (1,549.01) 14 13.35%
25 (1,133.00) 14 20.43%
26 (1,589.74) 13 12.21%
27 (1,244.16) 14 18.15%
28 (1,243.23) 13 17.69%
29 (1,175.82) 13 19.06%
30 (1,584.90) 14 12.88%
31 (1,399.21) 12 14.26%
32 (1,546.31) 12 12.03%
33 (1,366.63) 14 16.00%
34 (1,274.03) 15 17.98%
35 (1,496.17) 15 14.52%
36 (1,350.31) 14 16.27%
37 (1,529.75) 14 13.60%
38 (1,620.37) 16 13.35%
39 (1,532.36) 16 14.43%
40 (1,587.88) 16 13.74%
41 (1,422.40) 14 15.13%
42 (1,381.32) 14 15.77%
43 (1,248.01) 13 17.60%
44 (1,443.39) 15 15.26%
45 (1,677.94) 15 12.28%
46 (1,638.37) 12 10.80%
47 (1,524.79) 13 13.08%
48 (1,461.99) 16 15.36%
49 (1,487.21) 12 12.88%
50 (1,687.40) 12 10.19%
51 (1,594.14) 13 12.15%
52 (1,253.09) 12 16.88%
53 (1,536.12) 12 12.17%
54 (1,639.88) 16 13.13%
55 (1,503.77) 16 14.80%
56 (1,428.02) 12 13.79%
57 (1,693.86) 15 12.10%
58 (1,580.91) 13 12.32%
59 (1,376.93) 12 14.63%
60 (1,264.73) 15 18.15%
61 (1,474.53) 13 13.79%
62 (1,323.09) 16 17.46%
63 (1,601.48) 15 13.17%
64 (1,664.26) 16 12.85%
65 (1,685.78) 16 12.61%
66 (1,766.97) 13 10.10%
67 (1,667.60) 13 11.24%
68 (1,472.00) 12 13.11%
69 (1,561.22) 14 13.19%
70 (1,623.06) 15 12.91%
71 (1,379.45) 15 16.22%
72 (1,594.82) 16 13.65%
73 (1,258.39) 13 17.40%
74 (1,367.79) 14 15.99%
75 (1,314.09) 12 15.73%
76 (1,426.85) 14 15.06%
77 (1,836.64) 15 10.61%
78 (1,551.23) 15 13.80%
79 (1,076.73) 13 21.34%
80 (1,521.56) 13 13.12%
81 (1,489.13) 14 14.16%
82 (1,652.08) 14 12.06%
83 (1,478.22) 15 14.77%
84 (1,586.72) 12 11.48%
85 (1,335.00) 12 15.35%
86 (1,329.02) 12 15.46%
87 (1,343.44) 12 15.20%
88 (1,404.21) 13 14.87%
 89 (1,355.13) 15 16.61%
90 (1,652.56) 16 12.98%
91 (1,520.45) 14 13.73%
92 (1,779.76) 15 11.18%
93 (1,599.74) 14 12.70%
94 (1,407.51) 15 15.79%
95 (1,617.77) 15 12.97%
96 (1,189.76) 15 19.57%
97 (1,530.60) 13 13.00%
98 (1,388.99) 12 14.43%
99 (1,281.10) 12 16.34%
100 (1,701.76) 15 12.01%
101 (1,580.57) 12 11.56%
102 (1,523.95) 14 13.68%
103 (1,780.12) 13 9.95%
104 (1,231.76) 16 19.05%
105 (1,291.84) 13 16.77%
106 (1,459.24) 12 13.31%
107 (1,266.07) 16 18.43%
108 (1,436.17) 16 15.73%
109 (1,515.72) 14 13.79%
110 (1,466.70) 15 14.93%
111 (1,486.54) 15 14.66%
112 (1,579.84) 15 13.44%
113 (1,714.27) 15 11.87%
114 (1,439.32) 12 13.61%
115 (1,682.13) 16 12.65%
116 (1,393.38) 14 15.58%
117 (1,596.80) 14 12.73%
118 (1,583.93) 15 13.39%
119 (1,251.14) 16 18.69%
120 (1,517.71) 16 14.61%
121 (1,462.72) 14 14.53%
122 (1,452.71) 14 14.68%
123 (1,360.40) 14 16.11%
124 (1,518.63) 14 13.75%
125 (1,583.74) 12 11.52%
126 (1,357.43) 15 16.57%
127 (1,483.25) 16 15.07%
128 (1,450.15) 12 13.45%
129 (1,623.64) 12 10.99%
130 (1,449.22) 16 15.54%
131 (1,555.75) 15 13.74%
132 (1,678.83) 13 11.10%
133 (1,474.45) 12 13.07%
134 (1,527.20) 13 13.04%
135 (1,896.09) 16 10.53%
136 (1,423.43) 12 13.87%
137 (1,637.75) 15 12.74%
138 (1,719.71) 13 10.63%
139 (1,270.80) 15 18.04%
140 (1,883.38) 15 10.17%
141 (1,512.56) 15 14.30%
142 (1,802.73) 14 10.39%
143 (1,325.72) 12 15.52%
144 (1,473.10) 13 13.82%
145 (1,497.22) 13 13.47%
146 (1,251.15) 12 16.92%
147 (1,505.12) 14 13.94%
148 (1,394.78) 13 15.02%
149 (1,317.61) 12 15.66%
150 (1,241.76) 12 17.11%
151 (1,477.53) 13 13.75%
152 (1,582.39) 16 13.80%
153 (1,682.80) 15 12.22%
154 (1,547.79) 12 12.01%
155 (1,653.06) 15 12.56%
156 (1,257.34) 13 17.42%
157 (1,686.83) 12 10.20%
158 (1,599.99) 13 12.08%
159 (1,026.03) 15 NA
160 (1,264.71) 15 18.15%
161 (1,597.31) 12 11.34%
162 (1,637.81) 16 13.15%
163 (1,319.47) 15 17.19%
164 (1,638.86) 13 11.59%
165 (1,756.67) 13 10.21%
166 (1,611.38) 13 11.93%
167 (1,435.80) 13 14.37%
168 (1,499.18) 13 13.44%
169 (1,649.18) 15 12.60%
170 (1,622.19) 16 13.33%
171 (1,547.76) 14 13.36%
172 (1,399.10) 14 15.49%
173 (1,259.20) 14 17.87%
174 (1,322.63) 14 16.74%
175 (1,668.75) 16 12.80%
176 (1,560.51) 16 14.07%
177 (1,639.42) 15 12.72%
178 (1,446.10) 12 13.51%
179 (1,381.53) 15 16.19%
180 (1,477.08) 16 15.16%
181 (1,413.97) 14 15.26%
182 (1,594.32) 13 12.15%
183 (1,250.82) 15 18.40%
184 (1,463.56) 15 14.98%
185 (1,605.87) 16 13.52%
186 (1,435.80) 14 14.93%
187 (1,761.75) 15 11.37%
188 (1,662.55) 15 12.45%
189 (1,436.28) 14 14.92%
190 (1,393.00) 14 15.58%
191 (1,431.06) 15 15.44%
192 (1,558.77) 12 11.86%
193 (1,628.66) 16 13.25%
194 (1,662.38) 15 12.45%
195 (1,531.61) 15 14.05%
196 (1,462.17) 16 15.36%
197 (1,500.25) 14 14.00%
198 (1,656.34) 14 12.01%
199 (1,474.17) 16 15.19%
200 (1,521.02) 14 13.72%
201 (1,410.41) 14 15.31%
202 (1,444.54) 15 15.25%
203 (1,426.24) 14 15.07%
204 (1,779.44) 16 11.63%
205 (1,149.99) 12 19.06%
206 (1,537.15) 13 12.91%
207 (1,679.82) 16 12.68%
208 (1,576.52) 12 11.62%
209 (1,821.62) 16 11.22%
210 (1,582.51) 15 13.40%
211 (1,709.71) 16 12.35%
212 (1,479.37) 14 14.30%
213 (1,530.36) 12 12.26%
214 (1,529.38) 16 14.46%
215 (1,112.92) 12 19.93%
216 (1,145.01) 16 NA
217 (1,484.04) 15 14.69%
218 (1,456.62) 12 13.35%
219 (1,569.95) 13 12.47%
220 (1,440.89) 14 14.85%
221 (1,479.29) 16 15.13%
222 (1,567.07) 13 12.50%
223 (1,747.41) 15 11.52%
224 (1,876.45) 14 9.66%
225 (1,615.32) 13 11.88%
226 (1,585.97) 15 13.36%
227 (1,638.22) 13 11.59%
228 (1,288.40) 14 17.33%
229 (1,426.30) 16 15.87%
230 (1,511.42) 13 13.26%
231 (1,699.04) 14 11.51%
232 (1,459.78) 12 13.30%
233 (1,456.49) 15 15.08%
234 (1,639.11) 14 12.21%
235 (1,575.62) 13 12.39%
236 (1,382.29) 13 15.22%
237 (1,240.85) 14 18.21%
238 (1,516.36) 12 12.46%
239 (1,786.61) 13 9.88%
240 (1,297.36) 16 17.88%
241 (1,643.76) 16 13.08%
242 (1,438.67) 14 14.89%
243 (1,383.51) 13 15.20%
244 (1,777.87) 14 10.65%
245 (1,547.50) 12 12.02%
246 (1,794.18) 13 9.80%
247 (1,350.58) 15 16.68%
248 (1,590.56) 14 12.81%
249 (1,753.88) 16 11.89%
250 (1,492.92) 13 13.53%
251 (1,340.37) 14 16.44%
252 (1,518.22) 13 13.17%
253 (1,536.50) 13 12.92%
254 (1,596.03) 13 12.13%
255 (1,543.25) 15 13.90%
256 (1,344.26) 15 16.78%
257 (1,587.10) 12 11.47%
258 (1,666.44) 16 12.83%
259 (1,319.65) 16 17.51%
260 (1,472.89) 14 14.39%
261 (1,398.17) 12 14.28%
262 (1,361.37) 14 16.09%
263 (1,429.69) 15 15.46%
264 (1,422.97) 16 15.91%
265 (1,465.49) 13 13.93%
266 (1,293.47) 14 17.24%
267 (1,371.77) 15 16.34%
268 (1,365.30) 13 15.50%
269 (1,440.19) 14 14.86%
270 (1,577.72) 14 12.97%
271 (1,506.99) 12 12.59%
272 (1,592.18) 12 11.41%
273 (1,325.05) 16 17.42%
274 (1,741.91) 16 12.02%
275 (1,675.92) 15 12.30%
276 (1,439.16) 12 13.62%
277 (1,461.31) 16 15.37%
278 (1,798.92) 12 8.90%
279 (1,413.67) 16 16.05%
280 (1,609.86) 12 11.17%
281 (1,431.58) 15 15.44%
282 (1,548.22) 16 14.22%
283 (1,324.64) 13 16.19%
284 (1,394.29) 14 15.56%
285 (1,315.33) 12 15.71%
286 (1,547.67) 15 13.84%
287 (1,440.51) 16 15.66%
288 (1,652.15) 16 12.99%
289 (1,380.66) 12 14.57%
290 (1,699.73) 16 12.46%
291 (1,606.55) 12 11.22%
292 (1,653.18) 16 12.98%
293 (1,283.51) 15 17.81%
294 (1,457.81) 15 15.06%
295 (1,974.89) 14 8.74%
296 (1,457.65) 14 14.61%
297 (1,559.34) 16 14.09%
298 (1,581.03) 12 11.56%
299 (1,786.95) 12 9.04%
300 (1,799.66) 15 10.98%
301 (1,340.26) 16 17.18%
302 (1,488.93) 12 12.86%
303 (1,640.15) 16 13.12%
304 (1,367.30) 14 15.99%
305 (1,587.07) 14 12.85%
306 (1,473.98) 15 14.83%
307 (1,503.37) 12 12.65%
308 (1,583.19) 13 12.29%
309 (1,355.87) 14 16.18%
310 (1,737.88) 12 9.59%
311 (1,338.37) 14 16.47%
312 (1,540.22) 13 12.87%
313 (1,618.68) 16 13.37%
314 (1,534.59) 14 13.54%
315 (1,591.87) 14 12.79%
316 (1,648.19) 15 12.62%
317 (1,319.73) 14 16.79%
318 (1,325.88) 14 16.68%
319 (1,526.83) 14 13.64%
320 (1,790.39) 14 10.52%
321 (1,527.19) 13 13.05%
322 (1,270.87) 15 18.04%
323 (1,675.98) 12 10.33%
324 (1,487.81) 15 14.64%
325 (1,559.29) 13 12.61%
326 (1,579.85) 15 13.44%
327 (1,464.60) 13 13.94%
328 (1,296.16) 15 17.59%
329 (1,301.67) 13 16.60%
330 (1,694.50) 16 12.52%
331 (1,183.84) 14 19.34%
332 (1,182.52) 13 18.92%
333 (1,390.46) 16 16.40%
334 (1,465.05) 14 14.50%
335 (1,444.72) 13 14.24%
336 (1,663.46) 13 11.29%
337 (1,323.59) 14 16.72%
338 (1,766.45) 16 11.77%
339 (1,497.08) 16 14.89%
340 (1,389.85) 13 15.10%
341 (1,591.74) 15 13.29%
342 (1,127.47) 16 NA
343 (1,560.39) 12 11.84%
344 (1,393.84) 16 16.34%
345 (1,544.04) 15 13.89%
346 (1,520.18) 12 12.40%
347 (1,774.12) 12 9.18%
348 (1,427.76) 12 13.80%
349 (1,515.33) 12 12.47%
350 (1,465.80) 14 14.49%
351 (1,412.84) 14 15.28%
352 (1,592.53) 13 12.17%
353 (1,367.27) 14 15.99%
354 (1,417.63) 16 15.99%
355 (1,711.28) 14 11.38%
356 (1,366.47) 13 15.48%
357 (1,250.83) 15 18.40%
358 (1,526.06) 12 12.32%
359 (1,381.59) 15 16.19%
360 (1,391.39) 14 15.61%
361 (1,406.69) 13 14.83%
362 (1,360.57) 13 15.58%
363 (1,571.83) 16 13.93%
364 (1,543.92) 14 13.41%
365 (1,483.02) 14 14.24%
366 (1,414.19) 14 15.26%
367 (1,535.99) 13 12.92%
368 (1,413.52) 14 15.27%
369 (1,343.27) 15 16.80%
370 (1,455.54) 15 15.09%
371 (1,348.59) 16 17.04%
372 (1,573.85) 12 11.65%
373 (1,315.83) 16 17.57%
374 (1,377.96) 15 16.25%
375 (1,438.81) 16 15.69%
376 (1,613.23) 16 13.43%
377 (1,323.22) 14 16.73%
378 (1,165.59) 12 18.71%
379 (1,624.60) 15 12.89%
380 (1,167.74) 16 NA
381 (1,394.64) 15 15.99%
382 (1,545.99) 14 13.39%
383 (1,217.07) 14 18.67%
384 (1,396.86) 15 15.95%
385 (1,437.33) 15 15.35%
386 (1,631.94) 12 10.89%
387 (1,558.91) 16 14.09%
388 (1,240.80) 14 18.21%
389 (1,410.88) 12 14.07%
390 (1,445.07) 15 15.24%
391 (1,217.91) 13 18.19%
392 (1,488.55) 14 14.17%
393 (1,770.33) 15 11.28%
394 (1,430.68) 15 15.45%
395 (1,526.62) 14 13.64%
396 (1,385.02) 16 16.48%
397 (1,288.20) 13 16.84%
398 (1,823.98) 13 9.49%
399 (1,460.34) 12 13.29%
400 (1,448.41) 16 15.55%
401 (1,574.09) 14 13.02%
402 (1,374.61) 15 16.30%
403 (1,447.47) 15 15.20%
404 (1,814.98) 14 10.27%
405 (1,400.64) 14 15.46%
406 (1,342.23) 15 16.82%
407 (1,466.46) 13 13.91%
408 (1,447.31) 16 15.57%
409 (1,199.23) 13 18.57%
410 (1,565.06) 14 13.14%
411 (1,420.39) 14 15.16%
412 (1,491.80) 14 14.12%
413 (1,467.12) 15 14.93%
414 (1,631.45) 12 10.89%
415 (1,546.03) 13 12.79%
416 (1,614.16) 16 13.42%
417 (1,690.99) 14 11.61%
418 (1,557.15) 16 14.11%
419 (1,545.97) 15 13.86%
420 (1,235.58) 14 18.31%
421 (1,372.62) 12 14.70%
422 (1,500.85) 16 14.84%
423 (1,691.86) 14 11.60%
424 (1,406.32) 16 16.16%
425 (1,357.44) 13 15.63%
426 (1,439.43) 12 13.61%
427 (1,177.63) 14 19.47%
428 (1,847.86) 12 8.38%
429 (1,451.67) 15 15.14%
430 (1,499.37) 14 14.02%
431 (1,684.91) 16 12.62%
432 (1,454.46) 15 15.10%
433 (1,452.99) 15 15.13%
434 (1,471.79) 16 15.23%
435 (1,581.27) 14 12.93%
436 (1,655.58) 15 12.53%
437 (1,437.14) 14 14.91%
438 (1,774.43) 16 11.68%
439 (1,224.82) 12 17.45%
440 (1,323.96) 15 17.12%
441 (1,408.11) 15 15.78%
442 (1,575.88) 16 13.88%
443 (1,511.31) 14 13.85%
444 (1,372.87) 14 15.90%
445 (1,288.68) 14 17.33%
446 (1,411.01) 12 14.07%
447 (1,506.08) 16 14.77%
448 (1,319.83) 12 15.62%
449 (1,608.12) 12 11.20%
450 (1,632.20) 16 13.21%
451 (1,369.35) 12 14.76%
452 (1,523.88) 13 13.09%
453 (1,652.32) 15 12.57%
454 (1,513.72) 13 13.23%
455 (1,488.70) 13 13.59%
456 (1,200.04) 16 NA
457 (1,496.94) 15 14.51%
458 (1,662.21) 14 11.94%
459 (1,665.19) 13 11.27%
460 (1,609.52) 16 13.48%
461 (1,407.93) 16 16.13%
462 (1,465.99) 12 13.20%
463 (1,441.81) 13 14.28%
464 (1,759.32) 13 10.18%
465 (1,686.68) 12 10.20%
466 (1,658.38) 12 10.55%
467 (1,478.83) 13 13.73%
468 (1,358.61) 12 14.94%
469 (1,451.76) 12 13.42%
470 (1,271.97) 13 17.14%
471 (1,959.84) 16 9.97%
472 (1,575.77) 13 12.39%
473 (1,667.47) 12 10.44%
474 (1,401.97) 16 16.22%
475 (1,396.88) 14 15.52%
476 (1,371.85) 13 15.39%
477 (1,540.67) 14 13.46%
478 (1,586.99) 15 13.35%
479 (1,672.23) 13 11.18%
480 (1,440.87) 12 13.59%
481 (1,523.00) 12 12.36%
482 (1,465.99) 16 15.31%
483 (1,607.01) 12 11.21%
484 (1,259.87) 16 18.54%
485 (1,486.98) 12 12.89%
486 (1,449.09) 16 15.54%
487 (1,551.10) 15 13.80%
488 (1,691.43) 13 10.95%
489 (1,444.48) 13 14.24%
490 (1,634.77) 16 13.18%
491 (1,428.68) 15 15.48%
492 (1,385.78) 15 16.12%
493 (1,566.73) 13 12.51%
494 (1,324.90) 16 17.43%
495 (1,297.92) 16 17.87%
496 (1,697.40) 13 10.88%
497 (1,674.26) 16 12.74%
498 (1,576.29) 14 12.99%
499 (1,360.06) 12 14.92%
500 (1,387.83) 12 14.45%
 14.13%
2.25%

82.80% USING COUNT

82.77% USING NORMAL DIST