Truckco produces the OffRoad truck. The company wants to gain information about the discounted profits earned during the next three years. During a given year, the total number of trucks sold in the...

Truckco produces the OffRoad truck. The company wants to gain information about the discounted profits earned during the next three years. During a given year, the total number of trucks sold in the United States is

where G is the percentage increase in gross domestic product during the year and I is the percentage increase in the consumer price index during the year. During the next 3 years, Value Line has made the predictions listed in the file P12_54.xlsx. In the past, 95% of Value Line’s G predictions have been accurate within 6%, and 95% of Value Line’s I predictions have been accurate within 5%. We assume that the actual G and I values are normally distributed each year.

At the beginning of each year, a number of competitors might enter the trucking business. The probability distribution of the number of competitors that will enter the trucking business is also given in the file P12_54.xlsx. Before competitors join the industry at the beginning of year 1, there are two competitors. During a year that begins with n competitors (after competitors have entered the business, but before any have left), OffRoad will have a market share given by 0.5(0.9)n . At the end of each year, there is a 20% chance that any competitor will leave the industry. The selling price of the truck and the production cost per truck are also given in the file P12_54.xlsx. Simulate 1000 replications of Truckco’s profit for the next 3 years. Estimate the mean and standard deviation of the discounted 3-year profits, using a discount rate of 10%. You can use Excel’s NPV function here. Do the same if there is a 50% chance during each year that any competitor will leave the industry.