Create a Monte Carlo simulation for the project with at least 500 iterations of the calculation. Calculate the IRR for each iteration. NOTE: The IRR function in Excel will return an error if the IRR of the project is too low. For example, what is the IRR if both the initial cash flow and the operating cash flows are negative? The IRR is less than -100 percent. This is not a problem when you are calculating the IRR one time since you can see the IRR is too low, but when you are running 500 or more iterations it can create a problem trying to summarize the results. Because of this, you should create an IF statement that tests if the operating cash flow divided by the absolute value of the initial investment is less than 0.1. If this is the case, the cell will return an IRR of -99.99 percent, else the cell will calculate the IRR.

9g Study Textbook Solutions NEW! Expert Q&A Practice Sea Show all steps: Chapter 9, Problem 1EMP Bookmark ON Dahlia Simmons, CFO of Ulrich Enterprises, is analyzing a new project to sell solar-powered batteries for cell phones. Dahlia has estimated the following probability distributions for the variables in the project: 20% 10% 30% 40% PROBABILITY INDUSTRY DEMAND 124 million 80 million 95 million 108 million 5% 20% 20% 25% 20% 10% PROBABILITY ULRICH MARKET SHARE 1% 2% 3% 4% 5% 6% PROBABILITY 20% 70% 10% $60 million $65 million $72 million INITIAL COST 20% 65% 15% PROBABILITY $24 $26 $29 VARIABLE COST PER UNIT PROBABILITY 15% 25% 40% 20% $20 million $24 million $27 million $31 million FIXED COSTS The unit price depends on the industry demand because a greater demand will result in a higher price. Dahlia determines that the price per unit will be given by the equation: Price -Industry demand/2,000,000 +/ $2 The random "+$2" term represents an increase or decrease in price according to the following distribution: 45% PROBABILITY 55% $2 PRICE RANDOMNESS The length of the project, tax rate, and required return are: Project length (years): 6 Tax rate: 34% Required return: 14% 9g Study Textbook Solutions NEW! Expert Q&A Practice Sea Show all steps: Chapter 9, Problem 1EMP Bookmark ON Dahlia Simmons, CFO of Ulrich Enterprises, is analyzing a new project to sell solar-powered batteries for cell phones. Dahlia has estimated the following probability distributions for the variables in the project: 20% 10% 30% 40% PROBABILITY INDUSTRY DEMAND 124 million 80 million 95 million 108 million 5% 20% 20% 25% 20% 10% PROBABILITY ULRICH MARKET SHARE 1% 2% 3% 4% 5% 6% PROBABILITY 20% 70% 10% $60 million $65 million $72 million INITIAL COST 20% 65% 15% PROBABILITY $24 $26 $29 VARIABLE COST PER UNIT PROBABILITY 15% 25% 40% 20% $20 million $24 million $27 million $31 million FIXED COSTS The unit price depends on the industry demand because a greater demand will result in a higher price. Dahlia determines that the price per unit will be given by the equation: Price -Industry demand/2,000,000 +/ $2 The random "+$2" term represents an increase or decrease in price according to the following distribution: 45% PROBABILITY 55% $2 PRICE RANDOMNESS The length of the project, tax rate, and required return are: Project length (years): 6 Tax rate: 34% Required return: 14%