For this assignment, answer the questions posed by modeling the scenarios in a spreadsheet. You will create your own Excel file from scratch, but you are welcome to use the sample spreadsheet in this module as the starting point.
Requirements for All Parts
- Complete each part in separate worksheets (tabs) in a single Excel file.
- Keep the inputs, calculations, and outputs in separate sections.
- Do not hard-code numbers into formulas cells (i.e., do not paste the value of an output cell into a function argument of another input cell).
Part 1: Monte Carlo Simulation
You are a financial analyst at Delicious Sweets Company. Your supervisor wants to know the most profitable production level for a new product line the company is introducing. She has heard about the Monte Carlo simulation, but she is not sure how to run it. She asks you to construct a model that she can understand. The company will use your model to determine what level of production would be the most profitable for the new Timeless Wonder Chocolate Peanut Butter Wafer.
You have been given the following information:
|Number of wafers made
|cost per wafer
|price per wafer
|disposal cost per wafer
Build a Monte Carlo simulation model using this data in Excel and determine the best level of production the company should choose. Include the following items:
- Short description of what the model does
- Demand levels and associated probabilities
- Inputs including probability distribution of demand ranges
- random number generated
- amount sold
- total revenue
- total variable costs
- total disposing cost
- A two-way data table showing 1,000 trials for each demand level
- Highlight the cells that contain the best production level and profit
Part 2: Stock Price Simulation
In a separate worksheet from Part 1, build a simulation model in Excel to determine whether an investment in Intel stock (symbol: INTC) is worth pursuing. Include the following in your spreadsheet.
- Today’s date (date you are completing this assignment)
- Current price of Intel stock
- Data for the monthly returns on Intel for the last 60 months (for example, if the current month is June 2018, the data range would be June 2013 to June 2018).
- Monthly returns
- Beginning prices and end prices for the next 12 months
- Data table with 1,000 scenarios for Intel’s stock price in one year
- Simulation summary
Probably lose money
Probably make more than 10%
Make between 0 and 10% in return
Lose between 0 and 10%
Lose More than 10%
What is the probability that the stock will be at least $70?