Question

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 % (c) What is your recommendation regarding whether to launch the product? blank

Answer 1

(A)

Use What-if analysis --> Scenario manager to produce the following results.

• Best-case profit: $2,500,000
• Worst-case profit: - $300,000
• Base case profit: $100,000

(B)

Since the random numbers are not given, the result from the Simulation output will vary. So, do not expect exact matching of the answer. For an exact match, please provide the sets of random numbers.

Average profit	$321,435
Countif (profit < 0)	210
Prob (Profit < 0 i.e. loss)	21%