# simulation

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```					                        A                                               B                              C
1

2                                       Steps for Simple Monte Carlo Simulation
3

4    To use the @risk program, your excel program should be prepared.
5
6    Before using your @risk program, Excel should be prepared. Open Excel
7    Open Tools/Options/General - The Ignore Other applications should NOT be checked.
8    Open Tools/ add ins - Only the two toolpacks should be checked all others should NOT be checked
9    To start program click Palisade Decision Tools
10               then @Risk
11   You will receive a message stating that Dtools has not been initiated.
12   Close and restart your @risk program.
13
14   1. Identify input variables.
15    Operating Flows and Inflation Rates:
16
17   Size of Total Car Market                =risknormal(10000000,2000000)
18   Growth in size of car market            =RiskTriang(0.01,0.02,0.03)
19   New Product's market share              =RiskUniform(0.005,0.015)
20   Year 0 sales price                      25.5
21   Op costs                                20
22   Fixed Costs                             100000
23   Price inflation                         0.03
24   Cost inflation                          0.03
25
26
27
28
29
30
31   2. Identify output variables.
32          Place cursor on F12 and click on single red arrow.
33          Place cursor on F14 and click on single red arrow.
34          Drag cursor across C89-F89 and click on single red arrow.
35
36   3. Run Simulation
37         Click on simulation (red curve) button.
38
39   4. To Graph
40          For NPV: click on NPV results then graph
41          For Cash flows: click on first cash flow then summary
42
43
44   5. To save graph to spreadsheet
45         Right Click on graph
46         Click on graph then graph to excel
47         (The file can not have more than 17 characters in its name)
Electric Car Example
Risk analysis

========= ========== ============= ============ =========== ===========

INPUT DATA:                                          KEY OUTPUT:

Initial Investment:
(000)
Cost of plant                        \$660,000        NPV           #NAME?
Tax Rate                                 35.0%       IRR           #VALUE!
WACC                                     12.8%       MIRR          #NAME?
Life of project                              3       Payback       #NAME?

Operating Flows and Inflation Rates:
(000)
Size of Total Car Market          #NAME?
Growth in size of car market            2.0%
New Product's market share              1.0%
Year 0 sales price                    \$25.50
Op costs                     \$         20.00
Fixed Costs                  \$       100,000
Price inflation                         3.0%
Cost inflation                          3.0%

Salvage Value, Tax Rate, and Cost of Capital:

Tax rate                                   35%
Cost of capital                          12.8%

Effects on Other Projects:

Revenue reduction                           \$0
Cost reduction                              \$0

========= ========== ============= ============ =========== ===========

MODEL-GENERATED DATA:

Net Investment Outlay:

Price                                \$660,000
Freight                                      0
Installation                                 0
Change in NWC                                0
--------
\$660,000
========

Depreciation Schedule:

Depreciable basis =                                  \$660,000
EOY
MACRS               Dep.                 Book
Year                  Factor      Expense             Value
------              ------          --------          --------
1                      33%         \$217,800          \$442,200
2                      45%           297,000          145,200
3                      15%            99,000           46,200
4                        7%           46,200                 (0)
------          --------          --------
100%         \$660,000
======         ========

Project Cash Flows:

Year              Year              Year             Year
0                 1                 2                3
--------          --------          --------         --------
Size of Car Market                      #NAME?           #NAME?            #NAME?           #NAME?
Unit Sales                                               #NAME?            #NAME?           #NAME?
Unit price                               \$25.50           \$26.27            \$27.05           \$27.86
--------          --------         --------
Revenues                                              #NAME?             #NAME?          #NAME?
Variable Costs per Unit                  \$20.00            \$20.60            \$21.22           \$21.85
Operating costs                                       #NAME?             #NAME?          #NAME?
Fixed Costs                      \$     (100,000)        (103,000)         (106,090)        (109,273)
Depreciation                                            (220,000)         (220,000)        (220,000)
--------          --------         --------
Before tax income                                     #NAME?             #NAME?          #NAME?
Taxes                                                 #NAME?             #NAME?          #NAME?
--------          --------         --------
Net income                                            #NAME?             #NAME?          #NAME?
Plus depreciation                                        220,000           220,000          220,000
--------          --------         --------
Project NCF                           (\$660,000)      #NAME?             #NAME?          #NAME?

Decision Measures:                                                    Cumulative Cash Flows:

NPV                    #NAME?                                         0     (\$660,000)
IRR                    #VALUE!                                        1    #NAME?
TV                      #REF!                                         2    #NAME?
MIRR                   #NAME?                                         3    #NAME?
Payback                #NAME?                                         4
-660000.478   0   0   #REF!

```
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