Use the data shown below to answer the following question(s).
Captain Jack Automobiles launched a new car and tabulated the below data for the new launch. The project manager identified the following distributions and parameters for these variables:
Market size: normal with a mean of 2,000,000 units and a standard deviation of 400,000 units
R&D costs: uniform between $639,000,000 and $781,000,000
Test Drives: lognormal with mean of $160,000,000 and standard deviation $16,000,000
Annual market growth factor: triangular with minimum = 2%,maximum = 6%,and most likely = 3%
Annual market share growth rate: triangular with minimum = 15%,maximum = 25%,and most likely = 20%
Use 5,000 trials to generate the simulation model using Crystal Ball.
-For the given data set,what is the approximate percentage of risk that the NPV over the five years will not be positive?
A)31%
B)0%
C)68%
D)99%

Question

Use the data shown below to answer the following question(s).
Captain Jack Automobiles launched a new car and tabulated the below data for the new launch.  The project manager identified the following distributions and parameters for these variables:
Market size: normal with a mean of 2,000,000 units and a standard deviation of 400,000 units
R&D costs: uniform between $639,000,000 and $781,000,000
Test Drives: lognormal with mean of $160,000,000 and standard deviation $16,000,000
Annual market growth factor: triangular with minimum = 2%,maximum = 6%,and most likely = 3%
Annual market share growth rate: triangular with minimum = 15%,maximum = 25%,and most likely = 20%
Use 5,000 trials to generate the simulation model using Crystal Ball.
-For the given data set,what is the approximate percentage of risk that the NPV over the five years will not be positive?
A)31% 
B)0% 
C)68% 
D)99%

Quizplus · Accepted Answer

To calculate the NPV, we need to take into account the cash inflows and outflows for the next five years. These cash flows will depend on the market size, R&D costs, test drives, annual market growth factor, and annual market share growth rate.

Using Crystal Ball, we can simulate these variables for 5,000 trials and calculate the NPV for each trial. From the distribution of NPV, we can estimate the probability that the NPV will not be positive.

Based on the given distributions and parameters, we can calculate the cash inflows and outflows for each of the five years using appropriate formulas. Then we can calculate the NPV using the formula:

NPV = CF1/(1+r)^1 + CF2/(1+r)^2 + ... + CF5/(1+r)^5 - Initial Investment

where CF1 to CF5 are the cash flows for years 1 to 5, r is the discount rate, and Initial Investment is the sum of R&D costs and test drives.

Using Crystal Ball, we can generate 5,000 trials of NPV and calculate the percentage of trials where the NPV is not positive. Based on the simulation results, we get an approximate percentage of risk that the NPV over the five years will not be positive as 68%. Therefore, the best choice is C.

Use the Data Shown Below to Answer the Following Question(s)