Question

The following financial information was presented to potential investors for the launch of a new high-end portable barbecue:

Units Sold	Probability		Fixed cost	$110,000
500	.13		Variable cost	$55 / unit
750	.52		Revenue	$230 / unit
1000	.35

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Use the random numbers .09, .16, .89, .23, .56, .32, .26, and .78 to simulate eight trials. What is the net profit for each trial?

What is the average net profit?

Copy your Excel table(s) for the simulation.

Answer 1

Units sold = 500 if random number <= 0.13

Units sold = 750 if 0.13 < Random number <= 0.13 + 0.52 = 0.65

Units sold = 1000 if 0.65 < Random number <= 1

Revenue = Units sold * Revenue per unit

Variable cost = Units sold * Variable cost per unit

Net profit = Revenue - Variable cost - Fixed cost

Trial	Random Number	Units sold	Revenue	Variable cost	Fixed cost	Net profit
1	0.09	500	$115,000	$27,500	$110,000	($22,500)
2	0.16	750	$172,500	$41,250	$110,000	$21,250
3	0.89	1000	$230,000	$55,000	$110,000	$65,000
4	0.23	750	$172,500	$41,250	$110,000	$21,250
5	0.56	750	$172,500	$41,250	$110,000	$21,250
6	0.32	750	$172,500	$41,250	$110,000	$21,250
7	0.26	750	$172,500	$41,250	$110,000	$21,250
8	0.78	1000	$230,000	$55,000	$110,000	$65,000

Average net profit = (-$22,500 + $21,250 + $65,000 + $21,250 + $21,250 + $21,250 + $21,250 + $65,000)/ 8 = $26,718.75

Please up vote. Thanks!