Brian is planning to bid on the food concession rights at his university. He feels sure that a bid of $75,000 will win the concession rights; this one-time payment gives him the right to sell food at for the next Four years. Historically, annual sales revenues have averaged $400,000 with a standard deviation of $80,000 and appear to follow the normal distribution. He estimates the annual operating costs in each year are most likely to be around 66% of that year’s sales revenue, but in any given year this rate could be as low as 63% or as high as 72%.

Construct a simulation model and use Crystal Ball to help answer.

a. Based on the results of the simulation, what is the mean of the total profit Brian should expect over the next Four years altogether? When accounting for total profit, include the bid cost, the sales revenues, and the operating costs, but ignore any discounting for the time value of money.

b. Based on the results of the simulation, what is the probability that Brian would make at least $500,000 total profit over the next Four years?

c. Based on the results of the simulation, what is the overall probability that Brian would net an annual profit (accounting for only revenues from sales and operating costs in each year; don’t include the one-time bid cost for this part) of at least $100,000 in all Four years?

Answer rating: 100% (QA)

Annual after tax profit a Sale 100000 operating cost 40000 Loan repayement 15400 Prof... View the full answer