What is the expected profit

Reference no: EM132970277

Cuban Investors buys real estate, develops it, and resells it for a profit. A new property is available, and Mark Cuban, the president and owner of Cuban Investors, believes it can be sold for $160,000. The current property owner asked for bids and stated that the property will be sold for the highest bid in excess of $100,000. Two competitors will be submitting bids for the property. Cuban does not know what the competitors will bid, but he assumes for planning purposes that the amount bid by each competitor will be uniformly distributed between $100,000 and $150,000. Cuban is considering submitting a bid of anywhere between $120000 and $150000 (in increments of $5000) for the property. He has consulted you to help him decide upon the "right" amount to bid for the property in order to maximize his expected profit.

a. Let's assume that Cuban decides to bid $120000. Build a simulation model corresponding to the above scenario and run it for 5000 iterations to answer parts b, c, and d.

b. Based on your simulation model what is the probability that Cuban will be able to obtain the property with the bid of 120,000?

c. Please provide a 95% confidence interval on your probability estimate from part b.

d. What is the expected profit associated with the bid of $120,000?

e. Rerun your simulation model (5000 iterations each time) using bid amounts of $125000, $130,000, $135,000, $140,000, $145,000 and $150,000. You can either run each simulation separately or use risksimtable as discussed in the live session. Based on these simulations which bid amount value would you recommend to Mark Cuban in order to maximize his expected profit?

Reference no: EM132970277

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