Ogden Corporation has compiled the following information on a capital expenditure proposal: (1) The projected cash inflows

Question:

Ogden has compiled the following information on a capital expenditure proposal:
(1) The projected cash inflows are normally distributed with a mean of $36,000 and a standard deviation of $9,000.
(2) The projected cash outflows are normally distributed with a mean of $30,000 and a standard deviation of $6,000.
(3) The firm has an 11% cost of capital.
(4) The probability distributions of cash inflows and cash outflows are not expected to change over the project’s 10-year life.
a. Describe how the foregoing data can be used to develop a simulation model for finding the of the project.
b. Discuss the advantages of using a simulation to evaluate the proposed project.

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