(Solution) 16 Simulation Singleton Supplies Corporation (SSC) Manufactures Medical Products For Hospitals, Clinics, And Nursing Homes. SSC May Introduce A New... | Snapessays.com

(Solution) 16 Simulation Singleton Supplies Corporation (SSC) manufactures medical products for hospitals, clinics, and nursing homes. SSC may introduce a new...

I want answer in excel with formula and explaination to attached spreadsheet problem. This is from Financial management Chapter 11 problem 16.11.16 Simulation


Singleton Supplies Corporation (SSC) manufactures medical products for hospitals,


clinics, and nursing homes. SSC may introduce a new type of X-ray scanner designed to


identify certain types of cancers in their early stages. There are a number of uncertainties


about the proposed project, but the following data are believed to be reasonably accurate.


SSC uses a cost of capital of 15% to analyze average-risk projects, 12% for low-risk


projects, and 18% for high-risk projects. These risk adjustments primarily reflect the


uncertainty about each project’s NPV and IRR as measured by their coefficients of


variation. The firm is in the 40% federal-plus-state income tax bracket.


a. What is the expected IRR for the X-ray scanner project? Base your answer on


the expected values of the variables. Also, assume the after-tax “profits” figure


that you develop is equal to annual cash flows. All facilities are leased, so depreciation


may be disregarded. Can you determine the value of ?IRR short of actual


simulation or a fairly complex statistical analysis?


b. Assume that SSC uses a 15% cost of capital for this project. What is the project’s


NPV? Could you estimate ?NPV without either simulation or a complex statistical




c. Show the process by which a computer would perform a simulation analysis for


this project. Use the random numbers 44, 17, 16, 58, 1; 79, 83, 86; and 19, 62, 6


to illustrate the process with the first computer run. Actually calculate the firstrun


NPV and IRR. Assume the cash flows for each year are independent of cash


flows for other years. Also, assume the computer operates as follows: (1) A developmental


cost and a project life are estimated for the first run using the first


two random numbers. (2) Next, sales volume, sales price, and cost per unit are


estimated using the next three random numbers and used to derive a cash flow


for the first year. (3) Then, the next three random numbers are used to estimate


sales volume, sales price, and cost per unit for the second year, hence the cash


flow for the second year. (4) Cash flows for other years are developed similarly,


on out to the first run’s estimated life. (5) With the developmental cost and the


cash flow stream established, NPV and IRR for the first run are derived and


stored in the computer’s memory. (6) The process is repeated to generate perhaps


500 other NPVs and IRRs. (7) Frequency distributions for NPV and IRR


are plotted by the computer, and the distributions’ means and standard deviations


are calculated.


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This question was answered on: May 23, 2022

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May 23, 2022





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