A Monte Carla simulation program requires the user to first build an Excel spreadsheet model that captures the input variables for the proposed project. What issues and what benefits can the user derive from this process?
Most capital budgeting decisions involve some degree of uncertainty. For example, a company faces some degree of uncertainty associated with the demand for a new product. One method of accounting for this uncertainty is to average the highest and the lowest prediction of sales. However, such a method is flawed. Producing the average of the expected possible demand can lead to gross overproduction or gross underproduction, neither of which is as profitable as having the right volume of production.