Lise Vincent
[email protected]
Homework 5
1. Refer to the Hungry Dawg Restaurant example presented in class.
a. What is the probability that the company’s liability will exceed $42 million
?
For this question we have to do a list from 1 to 2000. Then we will use an IF function in order to see if the
company’s liability exceeds $42 million. It will be written like this:
We will take that answer and put it in the cell near the cell where we have 1. We will also put the value of the total
company cost next to this. Then we will use the data What If analysis to create a Data table. We then press F9 to get
our values. Just to give an idea of what will be the maximum value we will put a MAX function of all the company
costs we have in our list. From there we will calculate the average of the zeros and ones and convert it to
percentages. This gives the probability we are looking for.
In this table the maximum total company cost found in the table is $45,637,265 and the probability is 0.85%.
b. Suppose the management of the company wants to set the amount contributed per employee at a level that
such that there is only a 5% chance of the company’s liability exceeding $37 million. At what level should the
employee contribution per employee be set? (Use 2000 replications.)
We will do the same thing as in question b. except that in the IF function we will change $42 million to $37 million.
After that we will need to change the Amount Contributed per Employee until we can find a probability of around
5%.
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When we put the Amount Contributed per Employee at $137 this is what we get:
When we put it at $136:
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 Fall '08
 DR.CLIFFT.RAGSDALE
 Net Present Value, Internal rate of return, Lise Vincent

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