(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

 

analysis?

 

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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