1. Contemporary Engineering Economics, 4 th edition, © 2007 Risk Simulation Lecture No. 49 Chapter 12 Contemporary Engineering Economics Copyright, © 2006

2. Contemporary Engineering Economics, 4 th edition, © 2007 Logical Steps Involved in Simulating a Risky Investment

3. Contemporary Engineering Economics, 4 th edition, © 2007 A Logical Sequence of a Monte Carlo Simulation to Obtain an NPW Distribution

4. Contemporary Engineering Economics, 4 th edition, © 2007 A Sampling Scheme for Discrete and Continuous Random Variables

5. Contemporary Engineering Economics, 4 th edition, © 2007 Observed NPW Values ($)

6. Contemporary Engineering Economics, 4 th edition, © 2007 Simulated NPW Frequency Distribution Mean = $44,245, Standard Deviation = $18,585

7. Contemporary Engineering Economics, 4 th edition, © 2007 Simulation Result Based on 200 Iterations

8. Contemporary Engineering Economics, 4 th edition, © 2007 Risk Simulation with @RISK  Create a Cash Flow Statement with Excel  Define Uncertainty  Pick Your Bottom Line  Simulate  Analyzing the Simulation Result Screen

9. Contemporary Engineering Economics, 4 th edition, © 2007 Step 1: Create a Cash Flow Statement with Excel

10. Contemporary Engineering Economics, 4 th edition, © 2007 Step 2: Define Uncertainty

11. Contemporary Engineering Economics, 4 th edition, © 2007 Step 3: Pick Your Bottom Line – NPW at Cell G13 G13 Output cell Add Output

12. Contemporary Engineering Economics, 4 th edition, © 2007 Step 4: Simulate Start Simulation Simulation Setting Start @RISK

13. Contemporary Engineering Economics, 4 th edition, © 2007 Step 5: Analyzing the Simulation Result Screen