Chapter08slides - machine 24 Calculating the NPV for the...

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Applying Simulation to Decision Problems 1
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Monte Carlo simulation: A simple example 2
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Assigning random numbers to cash inflows 3
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Assigning random numbers to cash outflows 4
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Ten simulations of monthly cash flows 5
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Estimating probabilities from the simulation results 6
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The effect of the number of simulations on the reliability of the probability estimates 7
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Factors affecting profit earned by the plate 8
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Estimates of values for Elite pottery 9
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Tornado diagram for Elite pottery 10
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Probability distributions 11
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Simulation results 12
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Probability distribution of profit earned by commemorative plate 13
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Probability distribution for profit on the figurine 14
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A comparison of the two probability distributions 15
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Cumulative probability distributions 16
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First-degree stochastic dominance 17
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Two more cumulative distributions 18
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Second-degree stochastic dominance 19
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The mean-standard deviation screening method 20
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A normal distribution for profit 21
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Examples of quadratic utility functions 22
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Annual cash flows for two machines 23
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Calculating the NPV for the Alpha
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Unformatted text preview: machine 24 Calculating the NPV for the Beta machine 25 Probability distributions for Alpha machine 26 NPV probability distributions for the two machines 27 Simulation Process 1. 1. Identify the problem 2. 2. Develop the simulation model 3. 3. Test the model 4. 4. Develop the experiments 5. 5. Run the simulation and evaluate results 6. 6. Repeat 4 and 5 until results are satisfactory 28 Excel Simulation Example 29 Advantages of Simulation • Solves problems that are difficult or impossible to solve mathematically • Allows experimentation without risk to actual system • Compresses time to show long-term effects • Serves as training tool for decision makers 30 Limitations of Simulation • Does not produce optimum solution • Model development may be difficult • Computer run time may be substantial • Monte Carlo simulation only applicable to random systems 31 Introduction to Crystal Ball 32...
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This note was uploaded on 12/08/2011 for the course ENGINEERIN BURD taught by Professor Benni during the Fall '09 term at Uni. Reykjavik.

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Chapter08slides - machine 24 Calculating the NPV for the...

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