Quantative Methods for Business. Managerial and scientific report Best Bike Ltd. Simulation with Excel Cristal Ball.

Table of contents.

Managerial Report

1.Introduction

BestBikes Ltd. designs, produces and markets a wide variety of bicycles. Currently it is evaluating cardinal b ar-assed product proposals that have reached the final planning stage, namely a road- and mountain bike. BestBikes Ltd. can only produce one of the two proposed bikes. BestBikes wants to select the bike with the highest return on coronation (ROI) and wants to assign the amount of risk.

The calculation of the ROI ratio by BestBikes Ltd. for both proposals gives close identical results and in that locationfore more in depth digest is required. With almost equal ROI ratios the incurring risk and the impact of these risks on the spread in the possible ROI becomes significant.

Road Bike softwood Bike

Forecasted maximum sales4,000Forecasted maximum sales2,500

Sales price2,400Sales price3,600

Initial investment240,000Initial investment280,000

Fixed equal60,000Fixed cost100,000

Variable cost1,333Variable cost1,600

Table 1.1: Given figures for Road and Mountain Bike 1

2.Calculating ROI

The uncertainties that are important for this investment are:

The sales volume

The investment

The variable cost of each product

The initial investment for the Road Bike has a normal distribution with a misbegotten of 240,000 and a threadbare deviation of 20,000. The variable cost has of the Road Bike has a triangular distribution with min. and max.



value 750 and 2,000 respectively and the most likely value set of 1,250.

For the Mountain Bike the initial investment has a triangular distribution with min. and max. value of 100,000 and 600,000 respectively and the most potential value set of 150,000. The variable costs of the Mountain Bike follow a normal distribution with mean of 1.600 and standard deviation of 600. When using Crystal Ball there is a possibility to develop a simulation type which enables you to give insight in the investment problem that BestBike encounters.

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