Contemporary Engineering

Economics, 4th edition, © 2007

Risk Simulation

Lecture No. 49Chapter 12Contemporary Engineering EconomicsCopyright, © 2006

Contemporary Engineering

Economics, 4th edition, © 2007

Logical Steps Involved in Simulating a Risky Investment

Contemporary Engineering

Economics, 4th edition, © 2007

A Logical Sequence of a Monte Carlo Simulation to Obtain an NPW Distribution

Contemporary Engineering

Economics, 4th edition, © 2007

A Sampling Scheme for Discrete and Continuous Random Variables

Contemporary Engineering

Economics, 4th edition, © 2007

Observed NPW Values ($)

Contemporary Engineering

Economics, 4th edition, © 2007

Simulated NPW Frequency DistributionMean = $44,245, Standard Deviation = $18,585

Contemporary Engineering

Economics, 4th edition, © 2007

Simulation Result Based on 200 Iterations

Contemporary Engineering

Economics, 4th edition, © 2007

Risk Simulation with @RISK Create a Cash Flow Statement with Excel Define Uncertainty Pick Your Bottom Line Simulate Analyzing the Simulation Result Screen

Contemporary Engineering

Economics, 4th edition, © 2007

Step 1: Create a Cash Flow Statement with Excel

Contemporary Engineering

Economics, 4th edition, © 2007

Step 2: Define Uncertainty

Contemporary Engineering

Economics, 4th edition, © 2007

Step 3: Pick Your Bottom Line – NPW at Cell G13

G13 Output cell

Add Output

Contemporary Engineering

Economics, 4th edition, © 2007

Step 4: Simulate

Start Simulation

Simulation Setting

Start @RISK

Contemporary Engineering

Economics, 4th edition, © 2007

Step 5: Analyzing the Simulation Result Screen