The management of Madeira Manufacturing Company is considering the introduction of a wearable electronic device with the functionality of a laptop computer and phone. The fixed cost to launch this new product is $300,000. The variable cost for the product is expected to be between $160 and $240, with a most likely value of $200 per unit. The product will sell for $300 per unit. Demand estimates for the product vary widely, ranging from 0 to 20,000 units, with an average of 4000 units.
a. Compute profit for the base-case, worst case, and best-case scenarios
b. Assume the variable cost is a uniform random variable between $16 and $24 and the product demand is an exponential random variable with a mean of 4000 units. Construct a simulation model to estimate the mean profit and the probability that the project will result in a loss.
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