Question

Strassel Investors buys real estate, develops it, and resells it for a profit. A new property is available, and Bud Strassel, the president and owner of Strassel Investors, believes if he purchases and develops this property it can then be sold for $160,000. The current property owner has asked for bids and stated that the property will be sold for the highest bid in excess of $100,000. Two competitors will be submitting bids for the property. Strassel does not know what the competitors will bid, but he assumes for planning purposes that the amount bid by each competitor will be uniformly distributed between $100,000 and $150,000. a. Develop a worksheet that can be used to simulate the bids made by the two competitors. Strassel is considering a bid of $130,000 for the property. Using a simulation of 1000 trials, what is the estimate of the probability Strassel will be able to obtain the property using a bid of $130,000? Round your answer to 1 decimal place. Enter your answer as a percent. 63.2 X % b. How much does Strassel need to bid to be assured of obtaining the property? $ 150000 What is the profit associated with this bid? $ 10000 c. Use the simulation model to compute the profit for each trial of the simulation run. With maximization of profit as Strassel's objective, use simulation to evaluate Strassel's bid alternatives of $130,000, $140,000, or $150,000. What is the recommended bid, and what is the expected profit? A bid of $140,000 results in the largest mean profit of $ 17000 x. Feedback Check My Work Partially correct

Answer 1

a)

Simulation worksheet is as follows:

C D E F G H K A B 1 Strassel Investors Property Value = 160,000 Strassel's bid = 130,000 36.1% Competitor's bid range Lower = Upper = Probability of winning = 100,000 150,000 Expected Profit = Standard deviation of profit = 10,824 14,408 Simulation Trial Max of two bids Win Profit Cell Formula Copy to 11 1 0 B11:01010 D11:01010 E11:E1010 F11:F1010 30,000 30,000 Competitive Competitive Bid 1 | Bid 2 133,277 130,391 132,858 113,033 109,561 114,961 123,612 124,919 118,761 148,527 149,534 147,252 132,618 126,036 114,548 142,852 135,250 134,417 129,726 103,062 114,518 130,451 137,890 101,504 133,277 132,858 114,961 124,919 148,527 149,534 132,618 142,852 135,250 129,726 130,451 137,890 B11 =$C$6+RAND()*($C$7-$C$6) D11 =MAX(B11:011) E11 =IF(D11<$F$3,1,0) F11 =($C$3-$F$3) *E11 F5 =AVERAGE(E11:E1010) F7 =AVERAGE(F11:F1010) F8 =STDEV(F11:F1010) 30,000 Oo

EXCEL FORMULAS:

Cell	Formula	Copy to
B11	=$C$6+RAND()*($C$7-$C$6)	B11:C1010
D11	=MAX(B11:C11)	D11:D1010
E11	=IF(D11<$F$3,1,0)	E11:E1010
F11	=($C$3-$F$3)*E11	F11:F1010
F5	=AVERAGE(E11:E1010)
F7	=AVERAGE(F11:F1010)
F8	=STDEV(F11:F1010)

Probability = 36.1 %

(b)

Bid amount to be assured of obtaining the property = $ 150,000

Profit associated with this bid = $ 10000

(c)

C D E G H A B 1 Strassel Investors Property Value = 160,000 Strassel's bid = 140,000 62.7% Competitor's bid range Lower = Upper = Probability of winning = 100,000 150,000 Expected Profit = Standard deviation of profit = 12,544 9,672 Simulation Win Profit Cell Formula Copy to Trial 1 11 1 1 B11:C1010 D11:01010 E11:E1010 F11:F1010 MON00E Competitive Competitive Max of two bids Bid 1 Bid 2 121,051 124,709 124,709 121,872 103,068 121,872 139,886 117,638 139,886 104,846 105,024 105,024 139,810 110,944 139,810 111,980 102,488 111,980 103,733 110,338 110,338 107,794 135,475 135,475 111,431 122,166 122,166 142,449 120,911 142,449 120,561 148,812 148,812 128,815 130,973 130,973 138.519 112.188 138.519 B11 =$C$6+RAND()*($C$7-$C$6) D11 =MAX(B11:011) E11 =IF(D11<$F$3,1,0) F11 =($C$3-$F$3) *E11 F5 =AVERAGE(E11:E1010) F7 =AVERAGE(F11:F1010) F8 ESTDEV(F11:F1010) 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 0 0 20,000 20.000 1 0 22 1

Profit associated with a bid of 140,000 is the highest.

A bid of $ 140,000 results in the largest mean profit of $ 12,544