# NPV calculation using monte carlo simulation [closed]

I need help in solving part b). I need to solve it using excel can someone help?

a) Conduct a discounted cash flow calculation to determine the NPV of the following project, assuming a required rate of return of 0.22. The project will cost 75,000 USD but will result in cash inflows of 18,000 USD, 25,000 USD, 35,000 USD, and 50,000 USD in each of the next four years.

b) In Problem a), assume that the inflows are uncertain but normally distributed with standard deviations of 1000 USD, 1500 USD, 2000 USD, and 3000 USD, respectively. Find the mean forecast NPV. What is the probability the actual NPV will be positive? Hint: Use Monte Carlo simulation

I solved part a) using this: $$\text{NPV} = 75000 + \frac{18000}{1+0.22} + \frac{25000}{(1 + 0.22)^2} + \frac{35000}{(1 + 0.22)^3} + \frac{50000}{(1+ 0.22)^4}$$ However, in part b) the inflows are not constant and have a normal distribution. How can I calculate the NPV in such cases? Can someone tell me how to proceed?

## closed as off-topic by Oguz Toragay, Rob, TheSimpliFire♦, YukiJ, Kevin DalmeijerJul 22 at 9:49

• This question does not appear to be about operations research, within the scope defined in the help center.
If this question can be reworded to fit the rules in the help center, please edit the question.

• Welcome to SE.OR! We welcome anything related to operations research, like your problem, however, we cannot solve your homework questions. Please tell us, what you already tried, what you expected and what not worked. – Marco Lübbecke Jul 21 at 21:27
• I have solved part a) using the formula for Net Present Value. How should I approach part b.) I just need some hints on how to proceed? – user964 Jul 21 at 21:32
• Have you tried using Monte Carlo simulation as given by the hint? Where did you get stuck? – Kevin Dalmeijer Jul 21 at 21:57
• I'm voting to close this question as off-topic because the question is a homework problem to be solved and nothing will be added to the community by answering this question. – Oguz Toragay Jul 22 at 3:08
• @Oguz Toragay I believe homework questions are acceptable if the asker details their process and asks a specific question. Also see the meta discussion. – Kevin Dalmeijer Jul 22 at 8:12

## 1 Answer

Here is an attempt to solve the problem using Monte Carlo simulation. I used Palisade software package

Monte Carlo solution to the problem: I simulated the problem using 10,000 iterations. • i.stack.imgur.com/7OxRZ.png – Vicente P. Reventar III Jul 21 at 23:23
• Thanks, I'm relative new here just getting used to the site. – Vicente P. Reventar III Jul 22 at 0:50
• And we are all here in this community to help. You can find a lot of useful information on Meta about what type of questions you might ask yourself, formatting, and a lot more. – EhsanK Jul 22 at 1:54