Trucko produces the Goatco truck. The company wantsinformation about the discounted profits earned during thenext three years. During a given year, the total number oftrucks sold in the United States is 500,000 50,000*GNP 40,000*INF, whereGNP % increase in GNP during yearINF % increase in Consumer Price Index during yearValue Line has made the predictions given in Table 2 for theincrease in GNP and INF during the next three years.In the past, 95% of Value Line’s GNP predictions havebeen accurate within 6% of the actual GNP increase, and95% of Value Line’s INF predictions have been accuratewithin 5% of the actual inflation increase.At the beginning of each year, a number of competitorsmay enter the trucking business. At the beginning of a year,the probability that a certain number of competitors willenter the trucking business is given in Table 3.Before competitors join the industry at the beginning ofyear 1, there are two competitors. During a year that begins(after competitors have entered the business, but before anyhave left) with c competitors, Goatco will have a marketshare given by .5*(.9)c. At the end of each year, there is a20% chance that each competitor will leave the industry.The sales price of the truck and production cost pertruck are given in Table 4.a Simulate 500 times the next three years of Truckco’sprofit. Estimate the mean and variance of the discountedthree-year profits (use a discount rate of 10%).b Do the same if during each year there is a 50%chance that each competitor leaves the industry.(Hint: You can model the number of firms leaving theindustry in a given period with the RISKBINOMIALfunction. For example, if the number of competitors in theindustry is in cell A8, then the number of firms leaving theindustry during a period can be modeled with the statementRISKBINOMIAL(A8,.20). Just remember that theRISKBINOMIAL function is not defined if its first argumentequals 0.) Year 1 Year 2 Year 3Sales price $15,000 $16,000 $17,000Variable cost $12,000 $13,000 $14,000
Trucko produces the Goatco truck. The company wantsinformation about the discounted profits earned during thenext three years. During a given year, the total number oftrucks sold in the United States is 500,000 50,000*GNP 40,000*INF, whereGNP % increase in GNP during yearINF % increase in Consumer Price Index during yearValue Line has made the predictions given in Table 2 for theincrease in GNP and INF during the next three years.In the past, 95% of Value Line’s GNP predictions havebeen accurate within 6% of the actual GNP increase, and95% of Value Line’s INF predictions have been accuratewithin 5% of the actual inflation increase.At the beginning of each year, a number of competitorsmay enter the trucking business. At the beginning of a year,the probability that a certain number of competitors willenter the trucking business is given in Table 3.Before competitors join the industry at the beginning ofyear 1, there are two competitors. During a year that begins(after competitors have entered the business, but before anyhave left) with c competitors, Goatco will have a marketshare given by .5*(.9)c. At the end of each year, there is a20% chance that each competitor will leave the industry.The sales price of the truck and production cost pertruck are given in Table 4.a Simulate 500 times the next three years of Truckco’sprofit. Estimate the mean and variance of the discountedthree-year profits (use a discount rate of 10%).b Do the same if during each year there is a 50%chance that each competitor leaves the industry.(Hint: You can model the number of firms leaving theindustry in a given period with the RISKBINOMIALfunction. For example, if the number of competitors in theindustry is in cell A8, then the number of firms leaving theindustry during a period can be modeled with the statementRISKBINOMIAL(A8,.20). Just remember that theRISKBINOMIAL function is not defined if its first argumentequals 0.)
Year 1 Year 2 Year 3
Sales price $15,000 $16,000 $17,000
Variable cost $12,000 $13,000 $14,000
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