You are evaluating a project that will require $12,000 initial investment and will last for 5 years. You will use a straight-line depreciation and expect zero salvage value. The discount rate is 10.5%. The Year 1 revenue is expected to be $10,800 (), but could be distributed within a normal distribution with a standard deviation () of $850. In Years 2 to 5, revenue is expected to grow from the previous year with of 7% and of 2%. Variable costs are proportional to revenue with of 50% and of 4%. Fixed costs are $2,600 per year. Furthermore, the tax environment is uncertain with of 28% and of 2.5%. Assume there is no other cash flows involved with this project.

1. Estimate cash flows for this project. Make sure to incorporate all mentioned uncertainties. Assume normal distribution for all uncertainties.

2. Compute the NPV.

3. Run a simulation to compute NPV for 300 times. Compute the and of the 300 NPVs.

4. What is the probability that the NPV will be positive?

5. Plot a histogram to show the simulation result.

6. What are the limitations of Monte Carlo simulation?

7. Should you accept the project?