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Title: Monte Carlo Analysis - Engineering Economics
Description: VERY IMPORTANT!! Monte Carlo analysis to measure Uncertainty - DETAILED NOTES, PRACTICE Q/A
Description: VERY IMPORTANT!! Monte Carlo analysis to measure Uncertainty - DETAILED NOTES, PRACTICE Q/A
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Dealing with Risk: Monte Carlo Analysis
Generate
Random Numbers
Transform to
Random Variates
Use Variates
In Model
Generate and
Store Output
Continue
Analyze Output
CE4123 Engineering Economics - 2021 February
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Dealing with Risk: Monte Carlo Analysis
(Cont
...
g
...
CE4123 Engineering Economics - 2021 February
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Dealing with Risk: Monte Carlo Analysis
(Cont
...
2
...
4
...
6
...
Generate uniform random number on the interval (0 – 1)
Transform the random number into an appropriate statistical distribution
– the resulting number is referred to as a random variate
...
They are not certain about the
first costs and annual (net) revenue
...
Find: Simulate the present worth of this project
on the basis of a 10- year study period (i
...
N =
10) using the Monte Carlo method
...
)
• Cash Flow Diagram
A
0
• Equation
NPV = P + A (P/A, 15%,10)
P
1
10
i = 15%
Input variables tested in Risk Analysis:
- P (1st cost)
- A (Annual Benefits)
CE4123 Engineering Economics - 2021 February
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Example: Monte Carlo Simulation (Cont
...
)
• Step 3: CDF 1:
Cumulative
Distribution
Function for First
Cost (P)
Cumulative
Probability
First Cost (P)
CE4123 Engineering Economics - 2021 February
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Example: Monte Carlo Simulation (Cont
...
)
• Step 4: Generate random numbers to use for each trial using CDFs
Repeated CDF Random Sampling
Continue up to required number of iterations…… (in here 200 iterations)
CE4123 Engineering Economics - 2021 February
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Example: Monte Carlo Simulation (Cont
...
)
• Step 6: Interpret Results
Expected Value (EV)
EV(PW) = [11*(-1) +23*0 +15*1+22*2
...
17 = 17%
P(PW > 0) = 1 – 0
...
83 = 83%
P(PW > $ 8 million) = 9/200 (n) = 4
...
M
...
M
...
Bernhardt, M
...
CE4123 Engineering Economics - 2021 February
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Title: Monte Carlo Analysis - Engineering Economics
Description: VERY IMPORTANT!! Monte Carlo analysis to measure Uncertainty - DETAILED NOTES, PRACTICE Q/A
Description: VERY IMPORTANT!! Monte Carlo analysis to measure Uncertainty - DETAILED NOTES, PRACTICE Q/A