FM12 Ch 12 Tool Kit Simulation -...

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135a39f703d0f8e4e3a8c7d9a402bb210a1aa60c.xls Expl. Michael C. Ehrhardt Page 1 06/15/2011 1/18/2007 Chapter 12: Tool Kit for Monte Carlo Simulation Overview of this Workbook This workbook has five workbooks. Following is a brief description of each worksheet. The fifth worksheet, "Sim. Summary", contains summary statistics from the simulation. Creating Simulated Random Variables Step 1: Load Simtools.xla Step 2: Decide on distributions for risky variables If an error box like the picture (which is only a picture and not an actual error message) displayed at the right appeared when you opened this file, then you have not correctly installed the Excel Add-In, Simtools.xl a. You should close Excel without saving and read the instructions in the file " Explanation of Simulation.doc ," which explains how to install Simtools.xla . Only open this Excel file, FM12 Ch 12 Tool Kit Simulation.xls , after you have correctly installed Simtools.xla . This worksheet contains the model used to analyze RIC's new project decision as described in the text. It is the same model as in " FM12 Ch 12 Tool Kit.xls ," but with a Monte Carlo simulation added. There are many available simulation software packages, such as @Risk, but they are not free. For the analysis in this spreadsheet, we have used a free package that works very well for simple simulations. If your model is very complicated, then you would be better off using one of the commercial packages. But for simple models, the approach we show in this spreadsheet will work fine. We assume that you have correctly installed an Excel Add-In, Simtools.xla, developed by Professor Roger Myerson at Northwestern University. If not, then close Excel and read the instructions in the file " Explanation of Simulation.doc ." For more information on Simtools, go to the web site http://www.kellogg.nwu.edu/faculty/myerson/ftp/addins.htm. This first worksheet, "Expl.", describes how to create simulated variables to be used as inputs in a financial model. The second worksheet, "Model to be Sim.", contains the financial model for which the simulation analysis will be conducted. The third worksheet, "Sim. inputs and outputs," contains the actual simulated values that are used as inputs to the financial model. It also contains the resulting key outputs from the model. We find that it is convenient to have inputs and outputs located near one another. The fourth worksheet, "Run Sim.", explains how to run the simulation. It also contains the actual raw results from the simulation. Make sure Simtools is available, using the procedure described in the file " Explanation of Simulation.do
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135a39f703d0f8e4e3a8c7d9a402bb210a1aa60c.xls Expl. Michael C. Ehrhardt Page 2 06/15/2011 Sales Price: Normal distribution Mean= 3.00 Standard deviation= 0.35 Variable costs: Triangular distribution Lower bound= 1.40 Most likely= 2.10 Upper bound= 2.50 Unit sales: Triangular distribution Lower bound= 15,000 Most likely= 20,000 Upper bound= 30,000 Note: These are just examples. The actual inputs are on the worksheet "Sim. inputs and
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This note was uploaded on 06/15/2011 for the course FI515 FI515 taught by Professor Fi515 during the Spring '10 term at Keller Graduate School of Management.

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FM12 Ch 12 Tool Kit Simulation -...

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