Question
Build a simulation model to estimate the expected NPV of J-Crew and run your simulation with 5,000 trials. Based on the simulation, what is the
Build a simulation model to estimate the expected NPV of J-Crew and run your simulation with 5,000 trials. Based on the simulation, what is the estimate for the expected NPV of the business? What is the 95% confidence interval for the true value of the expected NPV? What is the probability that J-Crews discounted cash flow over the next 10 years will be negative? J-Crew has one item, which is expected to sell in the first year for $100. The price will grow in each of subsequent years by an amount given by a normal distribution with a mean of 5% and a standard deviation of 3% (actual change in price amounts in each of subsequent years can be different and are independent from year to year). Initial annual sales will be 5000 units and are expected to grow, with yearly growth given by a normal distribution with a mean of 5% and a standard deviation of 8%. The unit production and distribution cost for the product is $75 in year 1, and will grow at annual rate which is random and normally distributed with mean of 9% and a standard deviation of 3% (actual cost change amounts in each of subsequent years can be different and are independent from year to year). The valuation is based on a time horizon of 10 years. The discount rate is 4% {you should discount even the 1st years profit}.
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