Question
A young entrepreneur is considering investing in a motel (see details in the table below). The motel business is cyclical, with the occupancy rate varying
A young entrepreneur is considering investing in a motel (see details in the table below). The motel business is cyclical, with the occupancy rate varying with the state of the economy. The annual occupancy rates for the previous ten years are available for this market. You may assume normal distribution. Estimates for the fixed and variable costs are also provided. Run a simulation analysis and compute the mean profit after taxes and the lower and upper limits at the 95% confidence level. The entrepreneur will invest in the motel provided the expected rate of return on his capital is at least 25%.
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