For the new product development model covered in Module 4, suppose that analysts have made the following assumptions:
R&D costs: Triangular($500, $700, $800) in millions of dollars
Clinical trial costs: Triangular($135, $150, $160) in millions of dollars
Market size: Normal(2000000, 250000)
Market share in year 1: Uniform(6%, 10%).
All other data are considered constant.
Use Analytic Solver Platform to find the distribution of NPV performing 10,000 trials (replications).
What is the mean NPV that can be expected?
What is the probability that NPV over 5 years will not be positive?
What NPV are we likely to observe with a probability of at least 0.9?
What cumulative net profit in the fifth year are we likely to observe with a probability of at least 0.9?
Find a 95% confidence interval for the mean NPV for a 10,000 trial simulation. Interpret the resulting confidence interval.
What is the number of iterations needed if we want to estimate the NPV within $3,500,000?
Interpret the sensitivity chart.
Hint: Please use the new product development spreadsheet model that we use in Module 4. However, make sure that only uncertain variables are R&D costs, clinical trial costs, market size, and market share in year 1. All other data should be what is given in the deterministic version of the problem