Colonial Developers is a commercial land developer that specializes in building shopping centers and wants to develop land near New Bern, North Carolina. Colonial expects that the Net Present Value (∼ profit over time in today’s dollars) without the cost of the land will be $50,000,000.

In other words, after considering the time value of money without the cost of land (i.e., accounting for discounting the future cash flows except for the cost of the parcel of land) they will make $50,000,000 in preland cost profit. There is a parcel of land that has been appraised for $30,000,000 and several other developers are vying for the same property. Colonial has bid against several of the companies many times before and estimates the bids to range between

$35,000,000 and $45,000,000.

Assume a uniform distribution for the bids.

a. Construct a simulation to determine the optimum bid. Is it the average bid? Why or why not?

b. Graph the distribution of bids to validate the probability distribution.

Assume a triangular distribution for the bids.

c. Construct a simulation to determine the optimum bid.

d. Graph the distribution of bids to validate the probability distribution. Why is it not sufficient to simply calculate the average of the simulation demand to validate the simulation?

e. Did the change in the probability distribution of bid change the solution? If so, then how and why?