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

question 1

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 risk that the net present value over the 5 years will not be positive?

• A) approximately 40%
• B) approximately 57%
• C) approximately 24%
• D) approximately 77%

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