QUESTIONS RMI Corp has profits that depends on the variable T, which is the average temperature in July in NYC. An analyst has estimated that on average profit equals 540 million plus $5 million for each degree that the average temperature in NYC is above 60 degrees Fahrenheit. For example, if the average temperature in July equals 66 degrees, then average profit = $40 + $5 (6) = $70 million The firm does not know what the average July temperature will be this summer, but the analyst estimates that the number of degrees that the average July temperature is above 60 degrees has a Pert distribution with a minimum of 0 degrees, a most likely value of 6 degrees, and a maximum value of 10 degrees Other sources of uncertainty affect profits as well. For example, some costs might be higher than expected and some might be lower than expected. All of the other uncertainty in profits is modeled using the variable U, which has a normal distribution with a mean of ero and a standard deviation of $10 million. The random variables and T are negatively correlated with a correlation coefficient equal to -0.3. Thus, actual total profit $40 + SST +U. Your first task is to describe how you would construct a Monte Carlo simulation model using @Risk to answer the question: what is the probability that profit will be below $50 million? Your description should be specific and reference cells in a hypothetical spreadsheet. D B C E 1 2 3 4 5 6 7 QUESTIONS RMI Corp has profits that depends on the variable T, which is the average temperature in July in NYC. An analyst has estimated that on average profit equals 540 million plus $5 million for each degree that the average temperature in NYC is above 60 degrees Fahrenheit. For example, if the average temperature in July equals 66 degrees, then average profit = $40 + $5 (6) = $70 million The firm does not know what the average July temperature will be this summer, but the analyst estimates that the number of degrees that the average July temperature is above 60 degrees has a Pert distribution with a minimum of 0 degrees, a most likely value of 6 degrees, and a maximum value of 10 degrees Other sources of uncertainty affect profits as well. For example, some costs might be higher than expected and some might be lower than expected. All of the other uncertainty in profits is modeled using the variable U, which has a normal distribution with a mean of ero and a standard deviation of $10 million. The random variables and T are negatively correlated with a correlation coefficient equal to -0.3. Thus, actual total profit $40 + SST +U. Your first task is to describe how you would construct a Monte Carlo simulation model using @Risk to answer the question: what is the probability that profit will be below $50 million? Your description should be specific and reference cells in a hypothetical spreadsheet. D B C E 1 2 3 4 5 6 7
