When the above analysis reached the Chief Executive Officer (CEO) of your company, he became very concerned about the assumptions made in the model. His experience has taught him to consider the uncertainty associated with selling price and production costs more thoroughly. He required further analysis to be done by incorporating the following uncertainties to Question 1 model:
a) Selling price: uniformly distributed between $70 and $40.
b) Unit costs: normally distributed, mean of $32.00, standard deviation of $5.00.
He applied different decision criteria and was willing to go ahead with the product proposal if there was at least an 80% chance the net present value would be greater than $1,000,000.
Your task:
1. You are required to use Visual DSS to run a Monte Carlo simulation (a Risk Analysis). Based on your results determine whether the CEO will proceed under these uncertainties.
2. Produce a cumulative probabilities report and graph for the question. Based on results and the decision criteria, will the CEO accept or reject the proposed production of the product?