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Two alternatives for delivering finished goods to a distributor are being evaluated for a six year period. The first alternative is to do the delivery "in-house" as part of plant operations. The second alternative is to pay for the services of a transportation and delivery services provider. The in-house delivery alternative will cost $400K for two commercial trucks (at year 0 = present time). It is estimated that the trucks will have a salvage value of $120K after 6 years. Labor costs are estimated to be $250K per year, and fuel costs are estimated to be $20K. Annual vehicle maintenance costs are estimated as $25K per year. The transportation services provider is willing to provide the required delivery services for $360K per year. The assumed MARR (interest rate) = 6%.

Assume the salvage value, annual labor, annual fuel, maintenance costs, and MARR are independent random variables. The labor, fuel, and maintenance costs for each year may be different. For each cost component the annual cost will vary uniformly #25% around the estimated annual cost (i.e., fuel costs will be uniformly distributed between $15K and $25K). The salvage value will vary according to a triangular distribution. The “likeliest" value of $120K, a minimum of $100K, and a maximum of $160K. The MARR is also thought to follow a triangular distribution with the "likeliest" value of 6%, a minimum of 4%, and a maximum of 8%. Incorporate this into a spreadsheet of a simulation of the NPV for both alternatives using “Monte Carlo” sampling. Simulate 100,000 times (use a seed = 999). a. What is the average and the standard deviation of the NPVs for each alternative generated from the simulation? Make sure these values are labeled and highlighted in your spreadsheet. b. Copy and paste an overlay (the TAs will help with this) of Crystal Ball frequency charts for the simulations of each alternative. Which system do you prefer and why? How do the alternatives vary with respect to average cost and uncertainty? c. Create a histogram of whether or not the in-house option is a better choice than the services option.