Question#4

CAMMBM11.E.003. MY NOTES ASK YOURTEACHER PRACTICE ANOTHER The management of Madeira Computing is considering the introduction of a wearable electronic device with the functionality of a laptop computer and phone. The xed cost to launch this new product is $300,000. The variable cost for the product is expected to be between $167 and $247, with a most likely value of $207 per unit. The product will sell for $300 per unit. Demand for the product is expected to range from 0 to approximately 20,000 units, with 4,000 units the most likely. 4. [-l1 Points] (a) Develop a what-if spreadsheet model computing prot (in $) for this product in the base-case, worst-case, and best-case scenarios. base-case $ worst-case s best-case $ (b) Model the variable cost as a uniform random variable with a minimum of $167 and a maximum of $247. Model the product demand as 1,000 times the value of a gamma random variable with an alpha parameter of 3 and a beta pammeter of 2. Construct a simulation model to estimate the average prot and the probability that the project will result in a loss. (Use at least 1,000 trials.) What is the average prot (in 3)? (Round your answer to the nearest thousand.) $ What is the probability the project will result in a loss? (Round your answer to three decimal places.) (c) What Is your recommendatlon regarding whether to launch the product? 0 While the probability of a loss is less than 10%, the average prot is extremely low, so it may not be worthwhile for Madeira Computing to launch this product. 0 The average prot is fairly high, and the probability of a loss is less than 10%, so it appears to be a good idea for Madeira Computing to launch this product. 0 The average prot is extremely low, and the probability ofa loss is greater than 10%, so Madeira Computing should not launch this product. 0 While the average profit Is fairly high, the probability ofa loss Is greater than 10%, so Madelra Computing may not want to launch the product If they have low risk tolerance. O The average prot is in the negative, so Madeira Computing should not launch this product