3. Your small business is considering upgrading your computers. The cost (in year 0) is $6000. The expected increase in sales is $2000 each year for the next 4 years (and 0 after that). All cash flows occur at the end of the year. Assume a discount rate of 8% (5 points)

a. Is upgrading the computers a worthwhile investment? Why or why not? (0.5 points).

Now assume that the computer upgrade is associated with 3 possible outcomes that are all equally likely (each year): 1) sales increase by $4000, 2) sales increase by $2000, or 3) sales increase by $0.

b. What is the expected value of the sales increase? (0.5 point) c. What is the standard deviation of the sales increase (0.5 point) d. Conduct a Monte Carlo simulation with 1000 draws. What is the average NPV and the standard deviation of the NPV? (2 points) e. What percent of the time does the MBA yields a negative NPV? (0.5 point) f. Plot the frequency distribution (with % of times as your Y-axis, and NPV as your X-axis). (1 points).

Send in Excel.