1. Your small business is considering upgrading your computers. The cost (in year 0) is $6000. The expected increase in sales in $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%

1. Is upgrading the computers a worthwhile investment? Why or why not? .

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.

2. What is the expected value of the sales increase?
3. What is the standard deviation of the sales increase
4. Conduct a Monte Carlo simulation with 1000 draws. What is the average NPV and the standard deviation of the NPV?
5. What percent of the time does the MBA yields a negative NPV?
6. Plot the frequency distribution (with % of times as your Y-axis, and NPV as your X-axis).