Truckco produces the OffRoad truck. The company wants to gain information about the discounted profits earned during the next 3 years. During a given year, the total number of trucks sold in the United States is 500,000 + 50,000G 40,000I, where G is the percentage increase in gross domesticproduct during the year and I is the percentage increase in the consumer price index during the year. During the next 3 years, Truckco has made predictions listedbelow. In the past, 95% of Truckcos G predictions have been accurate within 6%, and 95% of Truckcos I predictions have been accurate within 5%. We assume that the actualG and I are normally distributed each year. (No additional hint will be given for this point.) At the beginning of each year, a number of competitors might enter the business. The probability distribution of the number of competitors that will enter thetrucking business is given below. Before competitors join the industry at the beginning of year 1, there are two competitors. During the year that begins with n (aftercompetitors have entered the business, but before any have left), OffRoad will have a market share given by 0.5(0.9)n. At the end of each year, there is a 20% chance that any competitor will leave the industry. The selling price of the truck and the production cost per truck are also given below. Simulate 1000 replications of Truckcos profits for the next 3 years. Estimate the mean and standard deviation of the discounted 3-year profits, using a discountrate of 10%. You can use Excels NPV function here. Do the same if the probability that any competitor leaves the industry during any year increases to 50%. For both simulations, report the Mean, SD, Min, Max, and a 95% interval for the discounted profits in your answer. Year 1 Year 2 Year 3Selling price ($ thousands) $15 $16 $17Variable cost ($ thousands) $12 $13 $14 Truckos predictions of Mean GDP (in percentage points)Year 1 Year 2 Year 3Mean 3 5 4 Truckos predictions of Mean I (in percentage points)Year Year 1 Year 2 Year 3Mean 4 7 3 Probability distribution of number of new entries each yearNumber Probability0 0.51 0.32 0.13 0.1



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