EXCEL CRYSTAL BALL:
Not wanting to leave his beloved alma mater, Will Anderson hascome up with a scheme to stay
around for 5 more years: He has decided to bid on the fast-foodconcession rights at the football
stadium. He feels sure that a bid of $60,000 will win theconcession, which gives him the right to sell
food at football games for the next 5 years. He estimates thatannual operating costs will be 40% of sales
and annual sales will average $100,000. His Uncle Josh has agreedto lend him the $60,000 to make the
bid. He will pay Josh $15,400 at the end of each year. His tax rateis 15%.
(a) Use a spreadsheet model to answer the following question.What is Will’s average annual after-tax
profit? Assume that the yearly payments of $15,400 are taxdeductible.
(b) Suppose that sales will probably vary plus or minus 40% fromthe average of $100,000 each year.
Will is concerned about the minimum after-tax profit he can earn ina year. He feels that he can survive
if it is at least $20,000. Model annual sales for the 5 years asfive continuous uniform random variables.
Based on a sample of 7,500 five-year periods (750 periods if usingExcel alone), estimate the probability
that over any five-year period the minimum after-tax profit for ayear will be at least $20,000. Should
Will bid for the concession?
