Question

Problem 12-15 (Algrithmic) Strassel Investors buys real estate, develops it, and resells it for a profit. A new property is available, and Bud Strassel, the president and owner of Strassel Investors, believes if he purchases and develops this property it can then be sold for $165000. The current property owner has asked for bids and stated that the property will be sold for the highest bid in excess of $100000. Two competitors will be submitting bids for the property. Strassel does not know what the competitors will bid, but he assumes for planning purposes that the amount bid by each competitor will be uniformly distributed between $100000 and $150000. a. Develop a worksheet that can be used to simulate the bids made by the two competitors. Strassel is considering a bid of $130000 for the property. Using a simulation of 1000 trials, what is the estimate of the probability Strassel will be able to obtain the property using a bid of $130000? Round your answer to 1 decimal place. Enter your answer as a percent. 36.71 x % b. How much does Strassel need to bid to be assured of obtaining the property? 150,000 What is the profit associated with this bid? 15,000 c. Use the simulation model to compute the profit for each trial of the simulation run. With maximization of profit as Strassel's objective, use simulation to evaluate Strassel's bid alternatives of $130000, $140000, or $150000. What is the recommended bid, and what is the expected profit? A bid of $140000 Vresults in the largest mean profit of s 13,488 x

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Answer 1

o The bid by each competitor is independent andl C uniformly distributed betweer $100,000 and $150,000 Strassel must beat the maximum of the two bids. CnTemplate [Compatibility Mode]...x Home Insert Page Layout Formulas Data Review View Add-Ins ge- 3 General Distribution Bids: Uniform Distribution SESS (SES6-SES5) RANDO Smallest Value VLOOKUP(RANDO,SAS7:SC$13,3) 5 Lower 6 Random No. Random No Upper 100000 150000 Vaue Largest Value 0.0 0.2 0.3 0.4 0.5 0.6 0.2 0.3 0.4 0.5 0.6 1.0 Uniform Distribution Two SES10 (SES11-SES10) RAND0 Smallest Value Largest Value 10 12 13 14 15 16 17 18 Simulation Trials 19 20 21 Bid 1 129501.3713 137914.3667 Trial Bid 2 Max Bid MAX(B21,C21

patibility Mode] - Microsoft Excell o Count the number Data Review View Add-Ins of times out of 500 that the $130,000 bid is better than the maximum bid by competitors. 520,"130000" н. Summary Statistics 14.673 AVERAGE E21-E520) $46,400 STDEV E21E520) Mean Profit Standard Deviation Minimum Profit Maximum Profit Number of Probabilitiy of O MIN(E21 E520) $146,728 MAX(E21 E520) o Then, compute the COUNTIF(E21 E520,"<130000) COUNTIF(range, criteria) frequency (probability) of outbidding competitors Microsoft Excel Summary Statistics Mean Profit Standard Deviation Minimum Profit Maxium Profit Number of Probabilitiy of outbidding 133,670 AVERAGE(E21 E520) $12,234 STDEV(E21 E520) 101,864 MIN E21 E520) 149,957 MAX(E21 E520) 170 COUNTIFCE21 E520,130000) 0.3400

o Compare that Microsoft Excel probability of 0.3400 for a $130,000 bid with probabilities for $140,000 and $150,000 bids. Summary Statistics Mean Profit Standard Deviation Minimum Profit Maximum Profit Number of.. Probabilitiy of outbidding S133,619 AVERAGE(E21 E520) 11,709 STDEV(E21 E520) 102,385 MINE21 E520 S149,966 MAX(E21 E520) 313 COUNTIF (E21 E520, <140000" o It is better to 0.6260 compute both probabilities on a single simulation, rather than running two separate simulations (as on the right). Summary Statisties Mean Profit Standard Deviation Minimum Profit Maimum Profit Number of... Probabilitiy of outbidding S133,238 AVERAGE(E21 E520) $11,588 STDEV(E21 E520) $103,690 MINE21 E520) S149,958 MAX(E21E520) 00 COUNTIF(E21 E520,<150000) 1.0000

a. 34.0 b$150, 0oo and ร่า5000 Mean Pav 1565o oD 30o bid i900 1565o