Question content area top

Part 1

An electric vehicle company is debating whether to replace its original model, Model X, with a new model, Model Y, which would appeal to a younger audience. Whatever vehicle is chosen, it will be produced for the next four years, after which time a reevaluation will be necessary. Develop a four-year Monte Carlo simulation model using

50 trials to recommend the best decision using a net present value discount rate of 3%.

Click here to view the descriptions of the two models.

Model Y has passed through the concept and initial design phases and is ready for final design and manufacturing. Final development costs are estimated to be $75 million, and the new fixed costs for tooling and manufacturing are estimated to be $600 million. Model Y is expected to sell for $27,000

The first year sales for Model Y are estimated to be normally distributed with an average of 65,000

and standard deviation of 11,000. The sales growth for subsequent years is estimated to be normally distributed with an average of 7% and standard deviation of 1%. The variable cost per vehicle is uncertain until the design and supply-chain decisions are finalized, but is estimated to be between $20,000 and $28,000 with the most likely value being $22,000.

Next-year sales for the Model X are estimated to be 45,000 with a standard deviation of

9,000 /year, but the sales are expected to decrease at a rate that is normally distributed with a mean of

9% and standard deviation of 4% for each of the next three years. The selling price is $26,000 Variable costs are constant at $21,000 Since the model has been in production, the fixed costs for development have already been recovered.

Click here to view a sample of 50 simulation trial results.

Trial	Difference
1	-105483.3906
2	138957.7896
3	-197442.1978
4	-837174.3274
5	-536715.1813
6	-806839.9172
7	635285.0889
8	-439640.3199
9	94580.07026
10	-873045.0628
11	-893705.0978
12	719839.7494
13	357308.2776
14	147050.3361
15	148430.515
16	284661.9672
17	-144783.3341
18	376984.9725
19	-322398.7271
20	172897.4602
21	217510.8357
22	108452.3154
23	-174027.6314
24	795906.4178
25	225820.9959
26	167081.7521
27	383456.2636
28	-822901.3336
29	-1492412.127
30	639824.1067
31	528380.4078
32	-690653.2839
33	840423.5836
34	-334778.5721
35	551258.4819
36	102085.3316
37	-443174.4398
38	-449355.0552
39	-939745.6051
40	-472581.6519
41	-963624.7537
42	-523512.8309
43	-1529199.344
44	-535246.5897
45	619341.0089
46	-532843.7913
47	543534.5634
48	750618.2105
49	-884691.6731
50	-440589.9461

Part 1

Set up a spreadsheet model and calculate the difference in the net present values in thousands of dollars (NPV) for producing Model X or producing Model Y using the means for uncertain values with normal distributions and the most likely values for uncertain values with triangular distributions.

NPV(Model

Y)minusNPV(Model

X)equals=$enter your response here

thousand

(Round to the nearest thousand dollars as needed.)

What do you need