Kennedy Foods Company is a producer of frozen turkeys. A new piece of freezing equipment became available in the market last month. It costs €32 5 000. The new equipment should increase Kennedy Foods' production efficiency, and hence its annual profit. However, the net increase in the annual profit is somewhat uncertain because it depends on the annual operating cost of the new equipment, which is uncertain at this point. Kennedy Foods estimates the possible annual revenues with the following probability distribution.
|
Net increase in Annual Revenue
|
Probability
|
|
25,000
|
0.1
|
|
30,000
|
0.35
|
|
35,000
|
0.4
|
|
40,000
|
0.15
|
(a) Express the present worth of this investment in analytical terms. Use a 10-year study period and a MARR of 15 %.
(b) Show the random-number assignment ranges that can be used in Monte Carlo simulation.
(c) Carry out a Alonte Carlo simulation of 100 trials. What is the expected present worth? What are the maximum and minimum P\V in the sample frequency distribution? Construct a histogram of the present worth. Is it worthwhile for Kennedy Foods to purchase the new freezing equipment?