Explain
zeel906
FIN5823CAMERAWARRANTYEXAMPLE.docxEXAMPLE
Step 1:
Simulation Model:
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Warranty costs for camera |
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Inputs |
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Parameters of time to failure distribution of any new camera (Gamma) |
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Desired mean |
2.5 |
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Desired stdev |
1 |
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Implied alpha |
6.250 |
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Implied beta |
0.400 |
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Warranty period |
1.5 |
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Cost of new camera (to customer) |
$400 |
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Replacement cost (to company) |
$225 |
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Discount rate |
8% |
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Simulation of new camera and its replacements (if any) |
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Camera |
1 |
2 |
3 |
4 |
5 |
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Lifetime |
2.442 |
NA |
NA |
NA |
NA |
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Time of failure |
2.442 |
NA |
NA |
NA |
NA |
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Cost to company |
0 |
0 |
0 |
0 |
0 |
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Discounted cost |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
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Failures within warranty |
0 |
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NPV of profit from customer |
$175.00 |
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Simulation Results:
Failures within warranty simulation results:
NPV of profit from customer simulation results:
Step 2: Week 5 Reflection
This week I learned what a simulation model is and how a distribution model is used in running simulations. I learned that a distribution can be continuous (meaning all continuous values in a distribution range) or discrete (meaning a discrete set of values in a distribution range). I learned how to use the RISK tools in excel to run a simulation which I captured the output above. I learned about the flaw of averages and how it impacts simulations. I also learned how the input variables distribution varies allow for multiple simulation runs or scenarios.
This week’s assignments took me about 8-10 hours.
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Output for NPV profit for Customer |
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NPV of profit from customer / 1 |
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Cell |
Model!B23 |
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Minimum |
($402.35) |
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Maximum |
$175.00 |
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Mean |
$139.49 |
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Mode |
$175.00 |
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Median |
$175.00 |
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Std Dev |
$90.04 |
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Skewness |
-2.6712 |
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Kurtosis |
10.3668 |
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Values |
1000 |
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Errors |
0 |
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Filtered |
0 |
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Left X |
($33) |
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Left P |
5.00% |
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Right X |
$175 |
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Right P |
95.00% |
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Dif. X |
$207.92 |
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Dif. P |
90.00% |
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1% |
($224.94) |
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5% |
($32.92) |
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10% |
($28.27) |
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15% |
($25.48) |
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20% |
$175.00 |
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25% |
$175.00 |
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30% |
$175.00 |
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35% |
$175.00 |
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40% |
$175.00 |
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45% |
$175.00 |
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50% |
$175.00 |
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55% |
$175.00 |
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60% |
$175.00 |
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65% |
$175.00 |
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70% |
$175.00 |
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75% |
$175.00 |
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80% |
$175.00 |
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85% |
$175.00 |
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90% |
$175.00 |
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95% |
$175.00 |
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99% |
$175.00 |
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