1) Problem 10.36, page 614 (old book problem 11.36, page 644) 36.

Dilbert's Department Store is trying to determine how many Hanson T-shirts to order. Currently the shirts are sold for $21, but at later dates the shirts will be offered at a 10% discount, then a 20% discount, then a 40% discount, then a 50% discount, and finally a 60% discount. Demand at the full price of $21 is believed to be normally distributed with mean 1800 and standard deviation 360. Demand at various discounts is assumed to be a multiple of full-price demand. These multiples, for discounts of 10%, 20%, 40%, 50%, and 60% are, respectively, 0.4, 0.7, 1.1, 2, and 50. For example, if full-price demand is 2500, then at a 10% discount customers would be willing to buy 1000 T-shirts. The unit cost of purchasing T-shirts depends on the number of T-shirts ordered, as shown in the file P10_36.xlsx. Use simulation to determine how many T-shirts the company should order. Model the problem so that the company first orders some quantity of T-shirts, then discounts deeper and deeper, as necessary, to sell all of the shirts. 2) Problem 11.47, page 700 (old book problem 12.38, page 724) 47. A ticket from Indianapolis to Orlando on Deleast Airlines sells for $150. The plane can hold 100 people. It costs Deleast $8000 to fly an empty plane. Each person on the plane incurs variable costs of $30 (for food and fuel). If the flight is overbooked, anyone who cannot get a seat receives $300 in compensation. On average, 95% of all people who have a reservation show up for the flight. To maximize expected profit, how many reservations for the flight should Deleast book? (Hint : The function RISKBINOMIAL can be used to simulate the number who show up. It takes two arguments: the number of reservations booked and the probability that any ticketed person shows up.) 3) Problem 11.60, page 702 (old book problem 12.51, page 726. Multiply all of the cash flow numbers by 10). Add the followings: all the years' returns are weakly correlated, but the correlation is not exactly known. Test the NPV of the project under correlations of 0, 0.1, 0.3, and 0.5. 60. You are considering a 10-year investment project. At present, the expected cash flow each year is $10,000. Suppose, however, that each year's cash flow is normally distributed with mean equal to last year's actual cash flow and standard deviation $1000. For example, suppose that the actual cash flow in year 1 is $12,000. Then year 2 cash flow is normal with mean $12,000 and standard deviation $1000. Also, at the end of year 1, your best guess is that each later year's expected cash flow will be $12,000. a. Estimate the mean and standard deviation of the NPV of this project. Assume that cash flows are discounted at a rate of 10% per year. b. Now assume that the project has an abandonment option. At the end of each year you can abandon the project for the value given in the file P11_60.xlsx. For example, suppose that year 1 cash flow is $4000. Then at the end of year 1, you expect cash flow for each remaining year to be $4000. This has an NPV of less than $62,000, so you should abandon the project and collect $62,000 at the end of year 1. Estimate the mean and standard deviation of the project with the abandonment option. How much would you pay for the abandonment option? (Hint : You can abandon a project at most once. So in year 5, for example, you abandon only if the sum of future expected NPVs is less than the year 5 abandonment value and the project has not yet been abandoned. Also, once you abandon the project, the actual cash flows for future years are zero. So in this case the future cash flows after abandonment should be zero in your model.)