Question
The CFO of a regional manufacturer has been utilizing the attached Monte Carlo simulation model and has been happy with its performance over the last
The CFO of a regional manufacturer has been utilizing the attached Monte Carlo simulation model
and has been happy with its performance over the last couple years. Key performance parameters are as follows:
Production Growth Rate: 25%
Unit Sale Price: $1,000/unit
Raw Material & Labor Cost: $700.00/unit
MARR 20%
He believes his Monte Carlo forecasts are stable as designed. The charts shows a high probability (over 75%) for strong profits.
Unfortunately, recent economic events have arisen that causes the CEO to revise two key parameters.
Reduce Base Production Growth Rate to 20% (from 25%)
Increase MARR to 25% (from 20%)
(4) A. In 25 words or less, describe the individual impacts upon the NPV you expect to see as a result of:
1. Reducing Base Production Growth Rate to 20% (from 25%)
2. Increasing MARR to 25% (from 20%)
B. Rerun the Monte Carlo simulation Compare and contrast the two NPV charts, before and after the adjustments. In 50 words or less, provide a summary that addresses at least three (3) major observations.
C. Based on your analysis, provide TWO feasible recommendations for the CEO that he could implement to improve the NPV outlook.
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