AdEco_HW
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Advanced Engineering Economy Homework A company that manufactures automobile parts is weighing the possibility of investing in an FMC (Flexible Manufacturing Cell). This is a separate investment and not a replacement of the existing facility. Management desires to receive a good estimate of the distribution characteristics for the annual worth (AW). There are three random variables; i.e., they have uncertainties in their values. An economic analyst is hired to estimate the desired parameter, AW. He concludes that the scenario presented to him is suitable for Monte Carlo simulation (method of statistical trials) because there are uncertainties in three variables and the direct analytical approach is virtually impossible. The company has done a preliminary economic study of the situation and provided the analyst with the following estimates: Investment Normally distributed with mean of $200,000 and standard deviation of $10,000 Life Uniformly distributed with minimum of 5 years and maximum of 15 years Market Value $20,000 (single outcome) Annual Net Cash Flow $20,000 probability 0.3 $16,000 probability 0.5 $22,000 probability 0.2 Interest Rate 10% All the elements subject to variation vary independently. Use Monte Carlo simulation to generate ten annual worth outcomes for the proposed FMC. What is the standard deviation of the outcomes?
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Transcript of AdEco_HW
Advanced Engineering EconomyHomework
A company that manufactures automobile parts is weighing the possibility of investing in an FMC (Flexible Manufacturing Cell). This is a separate investment and not a replacement of the existing facility. Management desires to receive a good estimate of the distribution characteristics for the annual worth (AW). There are three random variables; i.e., they have uncertainties in their values.An economic analyst is hired to estimate the desired parameter, AW. He concludes that the scenario presented to him is suitable for Monte Carlo simulation (method of statistical trials) because there are uncertainties in three variables and the direct analytical approach is virtually impossible.The company has done a preliminary economic study of the situation and provided the analyst with the following estimates:InvestmentNormally distributed with mean of $200,000 and standard deviation of $10,000
LifeUniformly distributed with minimum of 5 years and maximum of 15 years
Market Value$20,000 (single outcome)
Annual Net Cash Flow$20,000 probability 0.3$16,000 probability 0.5$22,000 probability 0.2
Interest Rate10%
All the elements subject to variation vary independently. Use Monte Carlo simulation to generate ten annual worth outcomes for the proposed FMC. What is the standard deviation of the outcomes?
