In a recent simulation of a shipping function expansion decision, you considered

Question

In a recent simulation of a shipping function expansion decision, you considered two alternatives. Given the random nature of cash inflows and outflows during the life of the project, you decided to use Monte Carlo simulation to estimate the NPV of each alternative. The descriptive statistics from your simulations appear below. Based on this information, it appears that ________________________.

the better alternative is number 1

the better alternative is number 2

neither alternative is better

none of the above is true

a.

the better alternative is number 1

b.

the better alternative is number 2

c.

neither alternative is better

d.

none of the above is true

Alernative 1 Mean Standard Deviation Maximum Minimum Range Mean Confidence interval $ 814,594 $ 833,710 Alernative 2 Mean Standard Deviation Maximum Minimum Range Mean Confidence interval 820,614$ 839,680 $824,152 $154,210 $1,323,285 $315,200 $1,008,085 $830,147 $153,808 $1,288,148 $298,631 $ 989,517

Explanation / Answer

Option (c) Neither alternative is better, Simulation simulates the situation and is not an indicative of betterness. Each time the same model gives a different result.

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