In Example 11.2, the gamma distribution was used to model the skewness to the right of the lifetime distribution. Experiment to see whether the triangular distribution could have been used instead....

In Example 11.2, the gamma distribution was used to model the skewness to the right of the lifetime distribution. Experiment to see whether the triangular distribution could have been used instead. Let its minimum value be 0, and choose its most likely and maximum values so that this triangular distribution has approximately the same mean and standard deviation as the gamma distribution in the example. (Use @RISK’s Define Distributions window and trial and error to do this.) Then run the simulation and comment on similarities or differences between your outputs and the outputs in the example.

EXAMPLE 11.2 WARRANTY COSTS FOR A CAMERA

The Yakkon Company sells a popular camera for $400. This camera carries a warranty such that if the camera fails within 1.5 years, the company gives the customer a new camera for free. If the camera fails after 1.5 years, the warranty is no longer in effect. Every replacement camera carries exactly the same warranty as the original camera, and the cost to the company of supplying a new camera is always $225. Use simulation to estimate, for a given sale, the number of replacements under warranty and the NPV of profit from the sale, using a discount rate of 8%.

Objective To use simulation to estimate the number of replacements under warranty and the total NPV of profit from a given sale.

WHERE DO THE NUMBERS COME FROM? The warranty information is a policy decision made by the company. The hardest input to estimate is the probability distribution of the lifetime of the product. We discuss this next.