INTRODUCTORY SIMULATION EXERCISES Construct a spreadsheet model for each of the following exercises and then use the model to build a simulation model.

a. Jason Enterprises faces uncertain future sales. Specifically, for the coming year, the firm’s CFO described her sales expectations as follows: “Sales could be as high as

$10,000,000 or as low as $7,000,000, but I could not tell you anything more.” How would you characterize firm sales using a probability distribution? If Jason’s operating earnings are typically 25% of firm sales, what would you estimate earnings to be for next year? Construct a spreadsheet model and incorporate consideration for the uncertainty in future revenues to estimate the expected gross profit for the firm.

b. In the spring of 2010, Aggiebear Dog Snacks Inc. was estimating its gross profits

(revenue less cost of goods sold) for 2011. The firm’s CFO had recently attended a two-day seminar on the use of simulation and asked his analyst to construct a simulation model to make the estimate. To help guide the analyst, the CFO prepared the following table: