STEPS IN THE HERTZ SIMULATION MODEL
Prof. David B. Hertz while evaluating the risky investments has proposed the use of a simulation model to obtain the expected return for an investment proposal.
To explain, let us take the following case:
A medium-sized industrial chemical producer is considering a $10 million extension to its processing plant. The estimated service life of the facility is 10 years the engineers expect to be able to utilise 2,50,000 tonnes of processed material worth $510 per tonne at an average processing cost of $435 per tonne. Is this investment a good bet?
In fact, we wish to find out what is the return that the company may expect? What are the risk? In evaluating such an investment proposal, the following nine factors ...
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