Writer Choice
38147The goal for this case study is to build risk based net present value model. Although there is a great deal of finance calculations within the solution, the purpose of this case is to alert you to the mechanics and outcomes by quantitative risk analysis in real life simulations that are used today in business.
Please follow the steps below to help you through the simulation. Take your time through the simulation and feel free to try it with several different parameters. However, use the information below ONLY for your formal answer. After you complete the simulation, create a word file that will include two graphs, actual include a title page, and reference page, citing any sources within your writing. The answer should not exceed 500 words, not inclusive of the title page and reference page. Then submit your document to this dropbox.
Please download the Risk software free 14-day trial at the link below.
http://go.palisade.com/RISKDownload.html
This software is an add-in to Excel and will allow you to build a full risk based Net Present Value (NPV) simulation.
After downloading, please click on the @Risk 7.5 icon and it will then open the software with a welcome to Risk screen
Click on the Quick Start icon to start the simulation
This takes you into a preloaded Excel/Risk file
You are started at the introduction tab (see bottom left of the screen for the tab name)
Click on the next tab called Model
This is the actual model simulation you will use to run this case
On the top left of the model, follow each step to understand how the software considers risk factors to ultimately generate a Net Present Value (NPV).
Note: Net present value displays the projected earnings generated by a project or investment exceeding the anticipated costs all displayed in present dollars.
See: http://www.investopedia.com/terms/n/npv.asp
As you perform each step, some will ask you to use the model to put your own numbers within the parameters. Please use the following:
Discount rate: 9%
Bonus limit: 50,000
Investment cost: 268,900
Year 1 revenue: 168,000
Annual fixed cost: 38,000
Annual revenue growth rate: 12%
Annual variable cost percentage 65%
b. The risk output name is to be NPV and Bonus
c.In the Define Distribution, select triangle distribution for all five inputs and as you select the distribution, leave the specific parameters as defaults
d. Note, you can change these later if you wish to see the implications to the answers, but use the defaults as to the graded outcome of the study
e. Note, make sure the dice are set to white and not orange
f. Use 15,000 Iterations
g. Use 1 Simulation
h. Click on the NPV and run the simulation. Cut and paste the graph into your answer word document for NPV and Bonus
F. In the word document, perform the following:
Give the outcome in $ for NPV and Bonus calculations
Copy and paste both NPV and Bonus graphs into the word document
Explain the results for both formulas
Answer if you would accept the project with the associated numerical parameters used in the calculations above and the final answers generated by the NPV and/or Bonus formula’s
Give information as to the risks associated to this project from your knowledge, research, and thoughts.
Make sure you cite any outside references that you use to help you achieve a coherent response to this case and include a title page and reference page. The answer should not exceed 500 words
If you have a mac and cannot go to one of our SPC campuses:
http://kb.palisade.com/index.php?pg=kb.page&id=1056
Here is the link that explains how the software ties into the Mac. This is the best they have as it really is not made to run through the conversion routines in the Mac. It still works, but this is the best they can do for free demo versions.
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