(1) The Excellence Construction company is looking into acquiring heavy equipment for its upcoming construction project. After consulting with the equipment dealer, there are three options for Excellence Construction: the Excellence Construction can purchase a piece of brand-new equipment, which costs $200,000; The company pays the full amount initially and sells the machine at the end of the project back to the dealer. The estimated salvage value can be 10 15% of the purchase price depending on the maintenance condition (10% for poor maintenance; 13% for decent maintenance; 15% for adequate maintenance; triangular distribution). ? the Excellence Construction can purchase a piece of used equipment at a price of $100,000, the company pays the full amount in the beginning and sells the machine at the end of the project. However, since it is used equipment, the dealer does not cover the warranty for the equipment, and there is a chance (i.e., 50% of the chance) the equipment breaks down that leads to a major repair which costs $35,000 at the end of the 2nd year of the usage. Also, the salvage will be only 10% of the purchased price for the used equipment. The project will take five years in total, and each year the machine will consume $5,000 for minor maintenance (both major and minor maintenance data will be counted for at the end of each year). Assume the interest rate follows a normal distribution (mean = 5%, standard deviation=1%). What would be your recommendation of these two scenarios as a project analyst? Use Monte-Carlo simulation modeling to analyze this scenario (40 points) (1) The Excellence Construction company is looking into acquiring heavy equipment for its upcoming construction project. After consulting with the equipment dealer, there are three options for Excellence Construction: the Excellence Construction can purchase a piece of brand-new equipment, which costs $200,000; The company pays the full amount initially and sells the machine at the end of the project back to the dealer. The estimated salvage value can be 10 15% of the purchase price depending on the maintenance condition (10% for poor maintenance; 13% for decent maintenance; 15% for adequate maintenance; triangular distribution). ? the Excellence Construction can purchase a piece of used equipment at a price of $100,000, the company pays the full amount in the beginning and sells the machine at the end of the project. However, since it is used equipment, the dealer does not cover the warranty for the equipment, and there is a chance (i.e., 50% of the chance) the equipment breaks down that leads to a major repair which costs $35,000 at the end of the 2nd year of the usage. Also, the salvage will be only 10% of the purchased price for the used equipment. The project will take five years in total, and each year the machine will consume $5,000 for minor maintenance (both major and minor maintenance data will be counted for at the end of each year). Assume the interest rate follows a normal distribution (mean = 5%, standard deviation=1%). What would be your recommendation of these two scenarios as a project analyst? Use Monte-Carlo simulation modeling to analyze this scenario (40 points)
