BUSA 739

Quantitative Methods for Business Management

Take Home Exercises 1 – Simulation

Assessment: This homework is worth 20% of your final grade. You can work in a
group of two.

Due date: Monday 30th April 2022 by 3pm

Format: Please send your Excel file via the ITC. Save the file under as your full
name followed by your student ID (for example John_Smith_12345678.xls).

Part A
You are the Financial Manager at a local theme park ‘See-World’ and have been
asked by the General Manager to report on the profitability of the business.

Specifically, the General Manager wishes to know what the average daily profit is
for the business overall, as well as for each of the major sources of revenue (namely
– ticket sales, revenue from the sale of food and beverages, and revenue from the
sale of merchandises). In addition, the General Manager wishes to estimate the risk
of those daily profits.

To assist you in your analysis, your assistant has collected data on:
- the number of patrons entering the park each day over a one-year period
(and the break down of the ticket types sold on each day)
- the dollar amount of transactions from the sale of food and beverages on 31st
December 2021 (your assistant believes that these dollar amounts are typical
of what happens each day)
- the dollar amount of transactions from the sale of merchandises on 31st
December 2021 (your assistant believes that these dollar amounts are typical
of what happens each day)

Furthermore, your assistant believes that:

- on any given day, approximately 90% of the patrons will buy either food
and/or beverages at the park (of this 90%, approximate 75% will make one
purchase and 25% will make two purchases)
- on any given day, only approximately 20% of the patrons will buy
merchandises at the park

The variable cost on food and beverages is estimated to be approximately 20% of

the sales made that day, while the variable cost on merchandises is estimated to be
approximately 10% of the sales made that day. The daily fixed costs of running the
theme park are approximately $100,000 a day. It is allocated across each source of
revenue by their proportion relative to the total revenue.
Ticket prices charged by the theme park are $55 for adults, $45 for concessions, and
$35 for children.

Given the above information, answer/do the following questions/things:

1. Estimate (using simulation with no more than 500 replications) what the
average daily overall profit is for the theme park, as well as the profits of
each major sources of revenue (as well as their standard deviation)
- Note you will need to simulate the internal processes of the profit
model, not just the final profit figure
2. Explain briefly (in a text box inserted somewhere on your spreadsheet) as to
why it is necessary to use simulation in this scenario to estimate the average
daily profits (and the standard deviation of those profits) and why it is not
possible to simply take the average of the actual profits each day to be the
average daily profits
3. Estimate the probability that the theme park will generate a daily profit of at
least $100,000
4. Estimate the probability that the theme park will not breakeven on any given
day
5. Approximately how many patrons must visit the theme park on any given day
in order for the theme park to at least breakeven?
6. The General Manager wishes to increase the ticket prices above to $60 for
adults, $50 for concessions, and $40 for children. However, he suspects that
the price increase would result in a 10% reduction in patronage. Use your
model to analyse this proposal and advise the General Manager as to whether
or not the price increase is a good idea.
7. The Marketing Manager wishes to reduce the ticket prices down to $50 for
adults, $40 for concessions, and $30 for children. She suspects that the price
reduction would result in a 15% increase in patronage. Use your model to
analyse this proposal and advise the Marketing Manager as to whether or not
the price reduction is a good idea.
Tips:
- Try and layout the profit system of the theme park in terms of equations and
figure out which variables need to be simulated
- You will need to segment the data you have been provided with into various
bin ranges in order to model the scenario as close to reality as possible (i.e.
you need to consider the underlying probability distribution of the data
provided)
- Be creative and make assumptions if necessary (they should be logical)

Part B
You task is to simulate in Excel an actual game of ‘lotto’ involving 45 numbered balls
(from 1 to 45).

The objective is to pick out 6 balls from the 45 balls without replacement. In other
words, once you pick out a certain ball (e.g. number 24), you cannot pick it again
because it has already been picked.

Your task is to simulate the picking of six ‘winning’ balls (assuming without
replacement) and display in six separate cells what those 6 numbers are.

To receive full marks, your model must have zero chance of the same numbers
being picked. You must simulate this in Excel without using macros or VBA Excel.