Question

Problem 16-05

To generate leads for new business, Gustin Investment Services offers free financial planning seminars at major hotels in Southwest Florida. Gustin conducts seminars for groups of 25 individuals. Each seminar costs Gustin $3100, and the average first-year commission for each new account opened is $5800. Gustin estimates that for each individual attending the seminar, there is a 0.01 probability that he/she will open a new account.

1. Determine the equation for computing Gustin’s profit per seminar, given values of the relevant parameters. Round your answers to the nearest dollar.
   
   Profit = (New Accounts Opened × $  ) – $  
   
2. What type of random variable is the number of new accounts opened? (Hint: Review Appendix 16.1 for descriptions of various types of probability distributions.)
   
   The number of new accounts opened is a   random variable with  trials and  probability of a success on a single trial.
   
3. Assume that the number of new accouts you get randomly is:
   

   Simulation Trial	New Accounts
   1	1
   2	2
   3	0
   4	0
   5	1
   6	0
   7	0
   8	0
   9	2
   10	0
   11	0
   12	0
   13	0
   14	0
   15	2
   16	0
   17	1
   18	0
   19	2
   20	0
   21	0
   22	0
   23	0
   24	2
   25	0

   
   Construct a spreadsheet simulation model to analyze the profitability of Gustin’s seminars. Round the answer for the expected profit to the nearest dollar. Round the answer for the probability of a loss to 2 decimal places.
   
   The expected profit from a seminar is $   and there is a probability of a loss.
   
   Would you recommend that Gustin continue running the seminars?
   
   Gustin   the seminars in their current format.
   
4. How large of an audience does Gustin need before a seminar’s expected profit is greater than zero? Use Trial-and-error method to answer the question. Round your answer to the nearest whole number.
   
   attendees

Answer 1