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Expected Value

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The financial success of the Downhill Ski Resort in the Blue Ridge Mountains is dependent on the amount of snowfall during the winter months. If the snowfall averages more than 40 inches, the resort will be successful; if the snowfall is between 20 and 40 inches, the resort will receive a moderate financial return; and if snowfall averages less than 20 inches, the resort will suffer a financial loss. The financial return and probability given each level of snowfall follows:

Snowfall Level (in) ..probability ..Financial retrun
> 40 ............................0.4 ...............120000
20 - 40 ........................0.2 ................40000
< 20 ............................0.4 ...............-40000

A large hotel chain has offered to lease the resort for the winter for $40000. Compute the expected value using simulation to determine whether the resort should operate or lease. Explain your answer.

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Solution Summary

A calculation of expected value in two ways: via math and a computer simulation script (provided in Matlab)

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Problem 18
The financial success of the Downhill Ski Resort in the Blue Ridge Mountains is dependent on the amount of snowfall during the winter months. If the snowfall averages more than 40 inches, the resort will be successful; if the snowfall is between 20 and 40 inches, the resort will receive a moderate financial return; and if snowfall averages less than 20 inches, the resort will suffer a financial loss. The financial return and probability given each level of snowfall follows:

Snowfall Level ...

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