Task:
What is a Monte Carlo simulation..? And, why is it important?
Assume a $4,000 investment and the following cash flows for two alternatives.
Year Investment X Investment Y
1 $1,000 $1,300
2 800 2,800
3 700 100
4 1,900
5 2,000
a. Under the payback method, which investment should be chosen? (Show your work/analysis/calculations for each investment).
b. Why do other methods allow for a better analysis?