Suppose we want to choose capacity for a plant that will produce a new drug. In particular, we want to choose the capacity that maximizes discounted expected profit over the next 10 years. We have the following information:
* Demand for the drug is expected to be normally distributed ~ Normal (50,000, 12,000).
* A unit of capacity costs $16 to build. * The number of units produced will equal the demand, up to capacity limits.
* The revenue per unit is $3.70 and the cost per unit is $0.20 (variable cost).
* The maintenance cost per unit of capacity is $0.40 (fixed cost).
* The discount rate is 10%.
Perform a simulation assuming the plant will be designed to meet the expected demand (i.e., 50,000 units). You may use the template below to build your model:
What is the net present value (NPV) in that case?
a. less than or equal to $10,000
b. more than $10,000 and less than or equal to $25,000
c. more than $25,000 and less than or equal to $50,000
d. more than $50,000 and less than or equal to $75,000
e. more than $75,000
