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

question 12

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 are the chances that the product will show a cumulative net profit in the fourth year?

• A) approximately 25%
• B) approximately 18%
• C) approximately 11%
• D) approximately 32%

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Definitions:

Selling Expense

Costs incurred directly in the sale of a product or service, including advertising, sales commissions, and store upkeep.

Merchandise Sold

The total goods that have been sold by a company, typically within a specific period, contributing to its revenue.

Discount Period

The discount period is the timeframe during which a discount is offered for early payment on goods or services, often used to incentivize quicker payment by customers.

Sales Discounts

Reductions in the price of goods or services offered to customers to encourage prompt payment.