Construct simulation model-estimate the probability, Basic Statistics

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CBT has agreed to finance the needs of a stereo wholesaler for the next month. To complete the loan agreement, the wholesaler must estimate the cash on hand during the first 90 days of operation. Daily receipts are normally distributed with a mean of $50,000 and a standard deviation of $12,000. Disbursements are also normally distributed with a mean of $48,000 and a standard deviation of $3,000.

(a)  Construct a computer simulation model to keep track of the cash flow during the first 90 days of operation. Assume that initially that there is $75,000 of cash on hand.

(b)  Repeat the simulation model constructed in part (a) 50 times using a data table. Use the results in the data table to estimate the probability that a short term loan will be needed.

(c)   Suppose that CBT has agreed to finance a short term loan if the probability a loan is needed is between 3% and 7%. How much initial cash on hand should the stereo wholesaler have?

 


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