Use the Information Below to Answer the Following Question(s) Suppose That the Project Manager of Trance Electronics Has Identified

question 7

Multiple Choice

Use the information below to answer the following question(s) . Below is a spreadsheet for Trance Electronics. $\begin{array}{|c|l|c|c|c|c|c|}\hline &\text { A } & \text { B } & \text { C } & \text { D } & \text { E } & \text { F } \\\hline 1&\text { Trance Electronics } & & & & & \\\hline 2 & \\\hline 3 & \text { Data } \\\hline 4 & \\\hline 5 & \text { Market size } & 20,000,000 \\\hline 6 & \text { Unit (monthly Rx) revenue } & \$ 120.00 \\\hline 7 & \text { Unit (monthly Rx) cost } & \$ 50.00 \\\hline 8 & \text { Discount rate } & 8 \% \\\hline 9 & & \\\hline 10 & \text { Project costs } & \\\hline 11 & \text { R\&D } & \$ 750,000,000 \\\hline 12 & \text { Clinical Trials } & \$ 100,000,000 \\\hline 13 & \text { Total Project Costs } & \\\hline 14 & & \\\hline 15 & \text { Model } & \\\hline 16 & & \\\hline 17 & \text { Year } & 1 &2&3&4&5\\\hline 18&\text { Market growth factor } & & 4 \% & 4 \% & 4 \% & 4 \% \\\hline 19&\text { Market size } & & & & & \\\hline 20&\text { Market share growth rate } & & 18 \% & 18 \% & 18 \% & 18 \% \\\hline 21 & \text { Market share } & 7 \% \\\hline 22 & \text { Sales } & \\\hline 23 & & \\\hline 24 & \text { Annual revenue } & \\\hline 25 & \text { Annual costs } \\\hline 26 & \text { Profit } \\\hline 27 & \text { Cumulative net profit } \\\hline 28 & \\\hline 29 & \text { Net present value } \\\hline\end{array}$ Suppose that the project manager of Trance Electronics has identified the following uncertain variables in the model and the distributions and parameters that describe them, as follows: Market size: normal with mean of 20,000,000 units and standard deviation of 4,000,000 units. R&D costs: uniform between $600,000,000 and $800,000,000.
Clinical trial costs: lognormal with mean of $150,000,000 and standard deviation $30,000,000. Annual market growth factor: triangular with minimum = 2%, maximum = 6%, and most likely = 3%.
Annual market share growth rate: triangular with minimum = 15%, maximum = 25%, and most likely = 20%.
The number of trials per simulation is equal to 10,000 at a Sim. Random Seed of 2. Run the simulation and answer the following questions using the Risk Solver Platform.
-What is the coefficient of variation obtained from the simulation results of the net present value?

• A) 1.78392
• B) -2.23958
• C) -1.36659
• D) 2.87645

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Definitions:

Carry Forward

A provision that allows individuals or businesses to apply current year losses, credits, or deductions to future tax years, to reduce taxable income.

Corporation

A legal entity that is separate and distinct from its owners, capable of owning property, entering contracts, and being sued.

Income Tax Payable

The amount of income tax a company owes to the government but has not paid by the end of the period.

Prepaid Asset

An asset on the balance sheet representing goods or services paid for in advance, which are to be consumed in future accounting periods.