Ogden Corporation has compiled the following information on a capital

 

expenditure proposal:

1. The projected cash inflows are normally distributed with a mean of $36,000 and a

standard deviation of $9,000.

2. The projected cash outflows are normally distributed with a mean of $30,000 and

a standard deviation of $6,000.

3. The firm has an 11% cost of capital.

4. The probability distributions of cash inflows and cash outflows are not expected

to change over the project’s 10-year life.

a. Describe how the foregoing data can be used to develop a simulation model for

finding the net present value of the project.

b. Discuss the advantages of using a simulation to evaluate the proposed project.