The Salida Salt Company is considering making a bid to supply the highway department with rock salt to drop on roads in the county during the winter. The contract will guarantee a minimum of 50,000 tons in each year, but the actual quantity may be above that amount if conditions warrant. Management believes that the actual quantity will average 80,000 tons per year. The firm will need an initial $1,600,000 investment in processing equipment to get the project started. The contract will last for five years and is not expected to be renewed. The accounting department has estimated that annual fixed costs ill be $500,000 and that variable costs should be about $45 per ton of the final product. The new equipment will be depreciated using MACRS with a class life of five years. At the end of the project, it is estimated that the equipment could be sold for $150,000. The marketing department estimates that the state will grant the contract at a selling price of $60 per ton, though it may get some lower bids if the contract is opened for competitive bidding. The engineering department estimates that the project will need an initial net working capital investment of $115,000. The firms WACC is 10% and the marginal tax rate is 35%.

Perform a Monte Carlo simulation with 1,000 trials to determine the expected NPV and the standard deviation of the expected NPV. The uncertain variables and their probability distributions are given below. The quantity of rock salt sold should be simulated for each year independently of the others (i.e. it is five separate variables).

Variable	Distribution
Tons of rock salt in each year	Triangular with a minimum of 50,000, most likely of 80,000 and maximum of 95,000
Variable cost per ton	Normal with a mean of $45 and a standard deviation of $3
Salvage value of equipment	Uniform with a minimum of $70,000 and a maximum of $200,000