Use the Information Below to Answer the Following Questions) $\quad$

question 10

Multiple Choice

Use the information below to answer the following questions) . Below is a spreadsheet for Trance Electronics. $\begin{array}{|l|l|l|l|l|l|l|}\hline & {\mathrm{A}} & \mathrm{B} & \mathrm{C} & \mathrm{D} & \mathrm{E} & \mathrm{F} \\\hline 1 & \text { Trance Electronics } & & & & & \\\hline 2 & & & & & & \\\hline 3 & \text { Data } & & & & & \\\hline 4 & & & & & & \\\hline 6 & \text { Market size } & 20,000,000 \\\hline 6 & \text { Unit (monthly Rx) revenue } & \$ 120.00 \\\hline 7 & \text { Unit (monthly Rx) cost } & \$ 50.00 \\\hline 8 & \text { Discount rate } & 8 \% \\\hline 9 & & \\\hline 10 & \text { Project costs } & \\\hline 11 & \text { R\&D } & \$ 750,000,000 \\\hline 12 & \text { Clinical Trials } & \$ 100,000,000 \\\hline 13 & \text { Total Project Costs } & \\\hline 14 & & & & & & \\\hline 15 & \text { Model } & & & & & \\\hline 16 & & & & & & \\\hline 17 & \text { Year } & 1 & 2 & 3 & 4 & 5 \\\hline 18 & \text { Market growth factor } & & 4 \% & 4 \% & 4 \% & 4 \%\\\hline 19 & \text { Market size } & & & & & \\\hline 20 & \text { Market share growth rate } & & 18 \% & 18 \% & 18 \% & 18 \% \\\hline 21 & \text { Market share } & 7 \% & & & & \\\hline 22 & \text { Sales } \\\hline 23 & \\\hline 24 & \text { Annual revenue } \\\hline 25 & \text { Annual costs } \\\hline 26 & \text { Profit } \\\hline 27 & \text { Cumulative net profit } \\\hline 28\\\hline 29& \text { Net present value} \\\hline\end{array}$
$\quad$ 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 Analytic Solver Platform.
[Hint: choose the closest value.]
-What cumulative profit in the fifth year is likely to be realized with a probability of 0.50?

• A) $78,244,098
• B) $101,970,955
• C) $144,058,696
• D) $203,676,827

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Definitions:

Contribution Margin

Contribution margin represents the amount by which sales revenue exceeds variable costs, indicating how much revenue is contributing to covering fixed costs and generating profit.

Net Income

The net income of a business following the deduction of all taxes and expenses from its overall revenue.

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales volume, indicating how a change in sales will affect profits.

Net Income

The total profit of a company after all expenses, including taxes and operating costs, have been subtracted from total revenue.