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Rockies Adventure Wear, Inc., has been selling athletic and outdoor clothing through catalogue sales. Most orders from customers are processed by phone and the rest by mail. Rockies is now considering expanding its market by introducing a web-based ordering system. The first cost of setting it up is Si2 0 000. A market expert predicts 10 000 new customers in the first year. Each new customer generates an average of S5 of revenue for Rockies.

There are, however, uncertainties regarding the possible market growth and annual operating and maintenance costs over the five years. The market may grow at a steady rate of 2%, 5%, 8%, 10%, or 15% from the initial estimate of 10 000, with each growth rate having a chance of 20%. The annual costs mav be S10 000, S15 000, S20 000, $25 000, $30 000, or $35 000, and these estimates are equally likely.

Rockies' .MARR is 18% for this type of investment. On the basis of 100 trials generated by Mont e Carlo simulation, what is the expected present worth for this project? Comment on the project's viability.

Business Management, Management Studies

  • Category:- Business Management
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