Why Simulations?

Which Project is the riskiest? What is the probability that an investment will yield at least a 20% return? What is the probability that this project will breakeven?

A company manufactures 30 units per day. The sale of these items depends upon the demand which has the following distribution. Sales 27 28 29 30 31 32 Probability 0.1 0.15 0.2 0.35 0.15 0.05

The product cost and sales price for each unit are 40 and 50 respectively. Any unsold product is to be disposed off at a loss of Rs. 15 per unit. There is a penalty of Rs 5 per unit if the demand is not met. Using the following random numbers, estimate the total profit/loss for the company for the next ten days. 10 99 65 99 95 1 79 11 16 20

If the company decides to produce 29 units per day, what is the advantage or disadvantage for the company?

Produce 30

Random Estimate Numbers d sales Profit 10 28 99 32 65 30 99 32 95 32 1 27 79 30 11 28 16 28 20 28

Penalty Penalty Demand No Profit/ Unsold Met Loss 280 30 0 250 300 0 10 290 300 0 0 300 300 0 10 290 300 0 10 290 270 45 0 225 300 0 0 300 280 30 0 250 280 30 0 250 280 30 0 250 2695

Background Information
In August, Walton Bookstore must decide how many of next years nature calendars to order. Each calendar costs the bookstore $7.50 and is sold for $10. After February 1 all unsold calendars are returned to the publisher for a refund of $2.50 per calendar.