Problem 16-05
To generate leads for new business, Gustin Investment Servicesoffers free financial planning seminars at major hotels inSouthwest Florida. Gustin conducts seminars for groups of 25individuals. Each seminar costs Gustin $3900, and the averagefirst-year commission for each new account opened is $4900. Gustinestimates that for each individual attending the seminar, there isa 0.01 probability that he/she will open a new account.
- Determine the equation for computing Gustin’s profit perseminar, given values of the relevant parameters. Round youranswers to the nearest dollar.
Profit = (New Accounts Opened × $ ) – $ - What type of random variable is the number of new accountsopened? (Hint: Review Appendix 16.1 for descriptions ofvarious types of probability distributions.)
The number of new accounts opened is a random variablewith trials and probability of a success on asingle trial. - Assume that the number of new accouts you get randomly is:
Simulation Trial | New Accounts |
1 | 1 |
2 | 0 |
3 | 2 |
4 | 0 |
5 | 0 |
6 | 0 |
7 | 0 |
8 | 1 |
9 | 0 |
10 | 1 |
11 | 1 |
12 | 1 |
13 | 0 |
14 | 2 |
15 | 1 |
16 | 0 |
17 | 0 |
18 | 0 |
19 | 1 |
20 | 0 |
21 | 1 |
22 | 0 |
23 | 0 |
24 | 0 |
25 | 0 |
Construct a spreadsheet simulation model to analyze theprofitability of Gustin’s seminars. Round the answer for theexpected profit to the nearest dollar. Round the answer for theprobability of a loss to 2 decimal places.
The expected profit from a seminar is $ and thereis a probability of a loss.
Would you recommend that Gustin continue running theseminars?
Gustin the seminars in their current format.- How large of an audience does Gustin need before a seminar’sexpected profit is greater than zero? Use Trial-and-error method toanswer the question. Round your answer to the nearest wholenumber.
attendees
