Reference no: EM132952210
A colleague recently approached you about investing in a start-up that has developed a doggie camera that tosses treats to your pet using a phone app. You are trying to determine whether or not you should invest in this trendy product that has recently hit the market. Recent estimates of the financial data for the doggie camera / treat tosser sales show the following information:
Units Sold Probability
3500 0.35
6000 0.45
9500 0.20
?Fixed costs for the production is Normally Distributed with a mean of $210,000 and a standard deviation of $35,000.
Variable cost is $29 per unit and the selling price is $89.
a) Set up this simulation in Excel and calculate the net profit for each trial. Run 25 trials of the simulation. Find the average net profit for the 25 trials.
b) Given the uncertainty in the demand and the fixed costs for this investment and the inherent risk in investing in this company, based on your analysis, is this a good investment, why or why not?
HINT: For each trial, you will need to simulate two random numbers -- one for units sold and one for fixed costs. You can either use the RAND() function or the Random Number Generators. Type your response to part (b) on your Excel sheet. Upload the completed Excel file here.