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You are considering purchasing an apartment complex. Before deciding, you would like to do a risk analysis of the situation to assess whether or not...
You are considering purchasing an apartment complex. Before deciding, you would like to do a risk analysis of the situation to assess whether or not the investment is a good idea for you. The complex has 40 units. Historical data indicate that the number of units rented in a given month is distributed uniformly between 30 and 40 units. The rent per unit, which you are not likely to change since demand is very price sensitive, is $600 per month. Monthly expenses for the entire complex seem to be normally distributed with mean $17,000 and standard deviation $1,500.
a. Develop an @RISK simulation model for 1,000 months.
b. According to your simulation results what is the expected monthly profit?
c. According to the simulation results what is the probability of making a profit in any given month?
d. Suppose your debt payments on this complex will be $2,400 per month. Would you take this investment? Defend your decision using the simulation output data.
