QM72 for Vickline only

M7A2 Part 2

Charlie Company sells virtual reality headsets and is expecting rapid growth. To convince angels to invest

$1,000,000, they need to show consistent profits and growth for the next five years. They used the

Delphi Method to build their forecasts, but there are risks and uncertainties they need to understand.

The following table gives their year one data:

Demand, units 50,000

Market Share 20%

Sale Price per unit $179.99

Marketing Costs $700,000

Research & Development Costs $500,000

Variable costs per unit sold $70.00

Overhead $250,000

Demand for the product is forecast to increase each year following a tringle distribution with a best case

of 20% per year, worst cast of 5%, and most likely of 15%, i.e. 5/15/20%.

Market share is expected to grow uniformly between 5% and 12% per year.

The group opinion is that the price Charlie can charge can only increase slowly due to competition. The

annual increase is normally distributed with a mean of $10.00 and a standard distribution of $2.50

($10.00, $2.50)

R&D costs will decrease following a uniform distribution of 10 to 12% per year.

Variable unit costs will increase following a triangular distribution of 5/7/9%.

Overhead costs will increase following a normal distribution (10%,3%).

Marketing costs will increase each year at a rate that is normally distributed (10%, 5%).

Build a Crystal Ball model and run 3,000 simulation trials, find the five-year cumulative profit and explain

the percentile report. Generate and explain a trend chart showing net profit by year.

What is the probability they will break even in year 2?

What it the probability the cumulative five-year profit will exceed $2,000,000?

Include graphs for each year’s profits and the trend chart.