monte carlo simulation example

WHITE CELLS ARE ADJUSTABLE Monte Carlo Simulation Example Input Number of simulations to run: 500 The more simulations ran the greater the likelihood of extraordinary results. (1-1000) Development Introduction Growth Maturity Decline Probability Value Probability Value Probability Value Probability Value Probability Value Length of stage (in years) 10% 1.00 25% 0.50 25% 3.00 10% 8.00 15% 2.00 All probabilities must equal 100%. 35% 1.50 50% 1.00 50% 5.00 20% 10.00 30% 4.00 40% 1.75 15% 1.50 20% 8.00 40% 13.00 40% 6.00 15% 2.00 10% 2.00 5% 10.00 30% 15.00 15% 8.00 Demand per year (in units) 10% - 20% 1,100 10% 2,800 10% 4,500 20% 2,300 35% - 40% 1,500 25% 3,100 20% 5,500 35% 3,100 40% - 25% 1,700 55% 4,100 30% 6,500 30% 3,600 15% - 15% 1,900 10% 4,700 40% 7,500 15% 4,000 Sales price (per unit) 10% - 15% 265.00 25% 224.00 20% 184.00 10% 204.00 35% - 15% 277.00 30% 247.00 30% 198.00 30% 215.00 40% - 35% 299.00 25% 251.00 40% 211.00 35% 230.00 15% - 35% 306.00 20% 265.00 10% 224.00 25% 245.00 COGS amount (per unit) 10% - 30% 123.00 20% 113.00 30% 103.00 20% 107.00 35% - 25% 125.00 35% 116.00 30% 105.00 25% 110.00 40% - 20% 129.00 30% 120.00 25% 108.00 30% 113.00 15% - 25% 133.00 15% 123.00 15% 113.00 25% 117.00 Operating expense (per year) 15% 339,500 10% 361,500 15% 331,500 20% 301,500 10% 316,200 35% 366,900 40% 371,500 20% 343,500 35% 314,800 40% 327,500 30% 390,200 40% 381,500 35% 353,500 30% 323,500 40% 336,800 20% 415,500 10% 392,200 30% 361,500 15% 331,500 10% 346,800 Output 1 Average scenario Length of stage (in years) 1.64 1.01 5.37 12.59 5.20 Demand per year (in units) - 1,538 3,752 6,484 3,201 Sales price (per unit) - 292.96 245.42 202.37 225.85 COGS amount (per unit) - 126.98 117.49 106.39 112.10 Operating expense (per year) 379,433 376,704 351,056 316,809 332,531 Net Profit $3,958,409 $ (622,271) $(122,641) $ 692,531 $3,846,561 $ 164,229 Pessimistic scenario Percentile 33.3% The lower the percentile the more detrimental the results. Length of stage (in years) 1.75 1.00 5.00 13.00 6.00 Demand per year (in units) - 1,500 3,100 6,500 3,100 Sales price (per unit) - 299.00 247.00 198.00 215.00 COGS amount (per unit) - 129.00 120.00 108.00 113.00 Operating expense (per year) 390,200 381,500 353,500 323,500 336,800 Net Profit $2,667,550 $ (682,850) $(126,500) $ 201,000 $3,399,500 $(123,600) Optimistic scenario Percentile 66.7% The higher the percentile the more beneficial the results. Length of stage (in years) 1.50 1.00 5.00 13.00 6.00 Demand per year (in units) - 1,700 4,100 7,500 3,600 Sales price (per unit) - 306.00 251.00 211.00 230.00 COGS amount (per unit) - 125.00 116.00 105.00 110.00 Operating expense (per year) 366,900 371,500 353,500 314,800 327,500 Net Profit $7,255,450 $ (550,350) $ (63,800) $1,000,000 $6,242,600 $ 627,000 Notes: 1 Press "F9" to rerun the simulation © Kristoffer Burnett - Certified Management Accountant, 2009-2011 0 - 1,100, 000 1,100,001 - 2,200,0 00 2,200,001 - 3,200,000 3,200,001 - 4,300,000 4,300,001 - 5,400,000 5,400,001 - 6,400,000 6,400,001 - 7,500,000 7,500,001 - 8,500,000 8,500,001 - 9,600,000 9,600,001 - 10,700,000 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Net Profit Distribution

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A Monte Carlo simulation is a means to predict the probability of future events by assigning scenarios random numbers and the running the simulation numerous times to determine the likelihood of certain scenarios happening concurrently.

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WHITE CELLS ARE ADJUSTABLE

Monte Carlo Simulation Example

Input

Number of simulations to run: 500 The more simulations ran the greater the likelihood of extraordinary results.(1-1000)

Development Introduction Growth Maturity DeclineProbability Value Probability Value Probability Value Probability Value Probability Value

Length of stage (in years) 10% 1.00 25% 0.50 25% 3.00 10% 8.00 15% 2.00 All probabilities must equal 100%.35% 1.50 50% 1.00 50% 5.00 20% 10.00 30% 4.00 40% 1.75 15% 1.50 20% 8.00 40% 13.00 40% 6.00 15% 2.00 10% 2.00 5% 10.00 30% 15.00 15% 8.00

Demand per year (in units) 10% - 20% 1,100 10% 2,800 10% 4,500 20% 2,300 35% - 40% 1,500 25% 3,100 20% 5,500 35% 3,100 40% - 25% 1,700 55% 4,100 30% 6,500 30% 3,600 15% - 15% 1,900 10% 4,700 40% 7,500 15% 4,000

Sales price (per unit) 10% - 15% 265.00 25% 224.00 20% 184.00 10% 204.00 35% - 15% 277.00 30% 247.00 30% 198.00 30% 215.00 40% - 35% 299.00 25% 251.00 40% 211.00 35% 230.00 15% - 35% 306.00 20% 265.00 10% 224.00 25% 245.00

COGS amount (per unit) 10% - 30% 123.00 20% 113.00 30% 103.00 20% 107.00 35% - 25% 125.00 35% 116.00 30% 105.00 25% 110.00 40% - 20% 129.00 30% 120.00 25% 108.00 30% 113.00 15% - 25% 133.00 15% 123.00 15% 113.00 25% 117.00

Operating expense (per year) 15% 339,500 10% 361,500 15% 331,500 20% 301,500 10% 316,200 35% 366,900 40% 371,500 20% 343,500 35% 314,800 40% 327,500 30% 390,200 40% 381,500 35% 353,500 30% 323,500 40% 336,800 20% 415,500 10% 392,200 30% 361,500 15% 331,500 10% 346,800

Output 1

Average scenario

Length of stage (in years) 1.63 1.03 5.39 12.51 5.06 Demand per year (in units) - 1,516 3,769 6,550 3,214 Sales price (per unit) - 292.30 245.19 203.40 226.91 COGS amount (per unit) - 126.99 117.71 106.43 112.07 Operating expense (per year) 379,715 376,549 350,192 317,400 331,911 Net Profit $ 4,116,488 $ (618,936) $ (129,785) $ 702,072 $ 3,975,099 $ 188,038

Pessimistic scenarioPercentile 33.3% The lower the percentile the more detrimental the results.

Length of stage (in years) 1.75 1.00 5.00 13.00 6.00 Demand per year (in units) - 1,500 3,100 6,500 3,100 Sales price (per unit) - 299.00 247.00 198.00 215.00 COGS amount (per unit) - 129.00 120.00 108.00 113.00 Operating expense (per year) 390,200 381,500 353,500 323,500 336,800 Net Profit $ 2,667,550 $ (682,850) $ (126,500) $ 201,000 $ 3,399,500 $ (123,600)

Optimistic scenarioPercentile 66.7% The higher the percentile the more beneficial the results.

Length of stage (in years) 1.50 1.00 5.00 13.00 6.00 Demand per year (in units) - 1,700 4,100 7,500 3,600 Sales price (per unit) - 299.00 251.00 211.00 230.00 COGS amount (per unit) - 123.00 116.00 105.00 110.00 Operating expense (per year) 366,900 371,500 343,500 314,800 327,500 Net Profit $ 7,296,950 $ (550,350) $ (72,300) $ 1,050,000 $ 6,242,600 $ 627,000

Notes:

1 Press "F9" to rerun the simulation

0 - 1,100,000

1,100,001 - 2,100,000

2,100,001 - 3,100,000

3,100,001 - 4,100,000

4,100,001 - 5,100,000

5,100,001 - 6,100,000

6,100,001 - 7,200,000

7,200,001 - 8,200,000

8,200,001 - 9,200,000

9,200,001 - 10,200,000