Case Problem 1 Tri-State Corporation 585

22. Develop your own waiting line simulation model for the Hammondsport Savings Bank
problem (see Figure 12.14). Assume that a new branch is expected to open with interar-
rival times uniformly distributed between 0 and 4 minutes. The service times at this branch
are anticipated to be normal with a mean of 2 minutes and a standard deviation of
0.5 minute. Simulate the operation of this system for 600 customers using one ATM. What
is your assessment of the ability to operate this branch with one ATM? What happens to
the average waiting time for customers near the end of the simulation period?
23. The Burger Dome waiting line model in Section 11.2 studies the waiting time of cus-
tomers at its fast-food restaurant. Burger Dome’s single-channel waiting line system has
an arrival rate of 0.75 customers per minute and a service rate of 1 customer per minute.
a. Use a worksheet based on Figure 12.15 to simulate the operation of this waiting line.
Assuming that customer arrivals follow a Poisson probability distribution, the inter-
arrival times can be simulated with the cell formula –(1/l)*LN(RAND()), where l 
0.75. Assuming that the service time follows an exponential probability distribution,
the service times can be simulated with the cell formula –m*LN(RAND()), where
m  1. Run the Burger Dome simulation for 500 customers. The analytical model in
Chapter 11 indicates an average waiting time of 3 minutes per customer. What aver-
age waiting time does your simulation model show?
b. One advantage of using simulation is that a simulation model can be altered easily to
reflect other assumptions about the probabilistic inputs. Assume that the service time
is more accurately described by a normal probability distribution with a mean of
1 minute and a standard deviation of 0.2 minute. This distribution has less service time
variability than the exponential probability distribution used in part (a). What is the
impact of this change on the average waiting time?
24. Telephone calls come into an airline reservations office randomly at the mean rate of 15
calls per hour. The time between calls follows an exponential distribution with a mean of
4 minutes. When the two reservation agents are busy, a telephone message tells the caller
that the call is important and to please wait on the line until the next reservation agent be-
comes available. The service time for each reservation agent is normally distributed with
a mean of 4 minutes and a standard deviation of 1 minute. Use a two-channel waiting line
simulation model to evaluate this waiting line system. Use the worksheet design shown in
Figure 12.17. The cell formula –4*LN(RAND()) can be used to generate the interarrival
times. Simulate the operation of the telephone reservation system for 600 customers.
Discard the first 100 customers, and collect data over the next 500 customers.
a. Compute the mean interarrival time and the mean service time. If your simulation model
is operating correctly, both of these should have means of approximately 4 minutes.
b. What is the mean customer waiting time for this system?
c. Use the COUNTIF function to determine the number of customers who have to wait
for a reservation agent. What percentage of the customers have to wait?

Case Problem 1 TRI-STATE CORPORATION

What will your portfolio be worth in 10 years? In 20 years? When you stop working? The
Human Resources Department at Tri-State Corporation was asked to develop a financial
planning model that would help employees address these questions. Tom Gifford was
asked to lead this effort and decided to begin by developing a financial plan for himself.
Tom has a degree in business and, at the age of 25, is making $34,000 per year. After two
years of contributions to his company’s retirement program and the receipt of a small
inheritance, Tom has accumulated a portfolio valued at $14,500. Tom plans to work 30
more years and hopes to accumulate a portfolio valued at $1 million. Can he do it?
586 Chapter 12 Simulation

Tom began with a few assumptions about his future salary, his new investment contri-
butions, and his portfolio growth rate. He assumed 5% annual salary growth rate as reason-
able and wanted to make new investment contributions at 4% of his salary. After some
research on historical stock market performance, Tom decided that a 10% annual portfolio
growth rate was reasonable. Using these assumptions, Tom developed the Excel worksheet
shown in Figure 12.18. Tom’s specific situation and his assumptions are in the top portion
of the worksheet (cells D3:D8). The worksheet provides a financial plan for the next five
years. In computing the portfolio earnings for a given year, Tom assumed that his new in-
vestment contribution would occur evenly throughout the year and thus half of the new in-
vestment could be included in the computation of the portfolio earnings for the year. Using
Figure 12.18, we see that at age 29, Tom is projected to have a portfolio valued at $32,898.
Tom’s plan was to use this worksheet as a template to develop financial plans for the
company’s employees. The assumptions in cells D3:D8 would be different for each em-
ployee, and rows would be added to the worksheet to reflect the number of years appropri-
ate for each employee. After adding another 25 rows to the worksheet, Tom found that he
could expect to have a portfolio of $627,937 after 30 years. Tom then took his results to
show his boss, Kate Riegle.
Although Kate was pleased with Tom’s progress, she voiced several criticisms. One of
the criticisms was the assumption of a constant annual salary growth rate. She noted that
most employees experience some variation in the annual salary growth rate from year to
year. In addition, she pointed out that the constant annual portfolio growth rate was unreal-
istic and that the actual growth rate would vary considerably from year to year. She further
suggested that a simulation model for the portfolio projection might allow Tom to account
for the random variability in the salary growth rate and the portfolio growth rate.
After some research, Tom and Kate decided to assume that the annual salary growth
rate would vary from 0% to 10% and that a uniform probability distribution would provide
a realistic approximation. Tri-State’s accounting firm suggested that the annual portfolio
growth rate could be approximated by a normal probability distribution with a mean of
10% and a standard deviation of 5%. With this information, Tom set off to develop a sim-
ulation model that could be used by the company’s employees for financial planning.

FIGURE 12.18 FINANCIAL PLANNING WORKSHEET FOR TOM GIFFORD

A B C D E F G H
1 Financial Analysis - Portfolio Projection
2
3 Age 25
4 Current Salary $34,000
WEB file 5
6
Current Portfolio
Annual Salary Growth Rate
$14,500
5%
Gifford 7 Annual Investment Rate 4%
8 Annual Portfolio Growth Rate 10%
9
10 Beginning New Portfolio Ending
11 Year Age Portfolio Salary Investment Earnings Portfolio
12 1 25 14,500 34,000 1,360 1,518 17,378
13 2 26 17,378 35,700 1,428 1,809 20,615
14 3 27 20,615 37,485 1,499 2,136 24,251
15 4 28 24,251 39,359 1,574 2,504 28,329
16 5 29 28,329 41,327 1,653 2,916 32,898
 Case Problem 2 Harbor Dunes Golf Course 587

Managerial Report
Play the role of Tom Gifford and develop a simulation model for financial planning. Write
a report for Tom’s boss and, at a minimum, include the following:
1. Without considering the random variability in growth rates, extend the worksheet in
Figure 12.18 to 30 years. Confirm that by using the constant annual salary growth
rate and the constant annual portfolio growth rate, Tom can expect to have a 30-year
portfolio of $627,937. What would Tom’s annual investment rate have to increase
to in order for his portfolio to reach a 30-year, $1 million goal?
2. Incorporate the random variability of the annual salary growth rate and the annual
portfolio growth rate into a simulation model. Assume that Tom is willing to use the
annual investment rate that predicted a 30-year, $1 million portfolio in part 1. Show
how to simulate Tom’s 30-year financial plan. Use results from the simulation
model to comment on the uncertainty associated with Tom reaching the 30-year, $1
million goal. Discuss the advantages of repeating the simulation numerous times.
3. What recommendations do you have for employees with a current profile similar to
Tom’s after seeing the impact of the uncertainty in the annual salary growth rate and
the annual portfolio growth rate?
4. Assume that Tom is willing to consider working 35 years instead of 30 years. What is
your assessment of this strategy if Tom’s goal is to have a portfolio worth $1 million?
5. Discuss how the financial planning model developed for Tom Gifford can be used
as a template to develop a financial plan for any of the company’s employees.

Case Problem 2 HARBOR DUNES GOLF COURSE

Harbor Dunes Golf Course was recently honored as one of the top public golf courses in
South Carolina. The course, situated on land that was once a rice plantation, offers some of
the best views of saltwater marshes available in the Carolinas. Harbor Dunes targets the
upper end of the golf market and in the peak spring golfing season, charges green fees of
$160 per person and golf cart fees of $20 per person.
Harbor Dunes takes reservations for tee times for groups of four players (foursome)
starting at 7:30 each morning. Foursomes start at the same time on both the front nine and
the back nine of the course, with a new group teeing off every nine minutes. The process
continues with new foursomes starting play on both the front and back nine at noon. To en-
able all players to complete 18 holes before darkness, the last two afternoon foursomes start
their rounds at 1:21 P.M. Under this plan, Harbor Dunes can sell a maximum of 20 after-
noon tee times.
Last year Harbor Dunes was able to sell every morning tee time available for every day
of the spring golf season. The same result is anticipated for the coming year. Afternoon tee
times, however, are generally more difficult to sell. An analysis of the sales data for last
year enabled Harbor Dunes to develop the probability distribution of sales for the afternoon
tee times as shown in Table 12.12. For the season, Harbor Dunes averaged selling approx-
imately 14 of the 20 available afternoon tee times. The average income from afternoon
green fees and cart fees has been $10,240. However, the average of six unused tee times per
day resulted in lost revenue.
In an effort to increase the sale of afternoon tee times, Harbor Dunes is considering an
idea popular at other golf courses. These courses offer foursomes that play in the morning
the option to play another round of golf in the afternoon by paying a reduced fee for the
afternoon round. Harbor Dunes is considering two replay options: (1) a green fee of $25