A company that manufactures aerospace parts is considering the possibility of investing in CMU (Cellular Manufacturing Unit). Top Management desires a good estimates distribution characteristic for the FW. There are three random variables i.e., they have uncertainties in their values. An economic analyst is hired to estimate the desired parameters and FW. He concludes that the scenario presented to him is suitable for Monto Carlo simulation because there are uncertainties in three variables and the direct analytical approach is impossible. The company has done a preliminary economic analysis of the situation and provided the analyst with the following estimates: Capital Investment Normally distributed with mean of $150,000 and standard deviation of $12,000 Useful Life Uniformly distributed with a minimum of 5 years and maximum 10 years Market value $25,000 (single outcome) Annual net cash flow $15,000 probability 0.9 $20,000 probability 0.5 $25,000 probability 0.2 MARR 12% All the elements subject to variation vary independently. Use Monto Carlo Simulation to generate five FW outcomes for the proposed CMU. What are the expected value and the standard deviation of the outcomes? (Hint: You should present your solution in a form of Table; you can use Excel as a calculator)
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
A company that manufactures aerospace parts is considering the possibility of investing in CMU (Cellular Manufacturing Unit). Top Management desires a good estimates distribution characteristic for the FW. There are three random variables i.e., they have uncertainties in their values. An economic analyst is hired to estimate the desired parameters and FW. He concludes that the scenario presented to him is suitable for Monto Carlo simulation because there are uncertainties in three variables and the direct analytical approach is impossible.
The company has done a preliminary economic analysis of the situation and provided the analyst with the following estimates:
|
Capital Investment |
|
|
Useful Life |
Uniformly distributed with a minimum of 5 years and maximum 10 years |
|
Market value |
$25,000 (single outcome) |
|
Annual net cash flow |
$15,000 probability 0.9 $20,000 probability 0.5 $25,000 probability 0.2 |
|
MARR |
12% |
All the elements subject to variation vary independently. Use Monto Carlo Simulation to generate five FW outcomes for the proposed CMU. What are the
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