Find the value to fdk of purchasing the aircraft

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Reference no: EM132255779

UPD a transportation company is considering purchasing a new aircraft capable of moving goods from the United States to Europe. Based on prior experience FDK estimates that the cost of purchasing and modifying the aircraft will be normally distributed with a mean of 42 million and a standard deviation of 0.95 million. The aircraft can operate for a period of 10 years. Each year the company will receive orders to transport between 128,000 and 150,000 tons of produce with all values in-between being equally likely.

FDK earns $105 for each ton it transports. The transportation cost depends on the cost of fuel. FDK estimates that the cost of transporting a ton of goods has a mean of $43 and a standard deviation of $5.50.

Assuming cost of capital is 5.45%

a. Find the value to FDK of purchasing the aircraft.

b. Run the simulation 2000 times and find the average value to FDK of purchasing the aircraft

c. Find the 98% confidence interval for the average value to FDK of purchasing the aircraft.

d. What recommendations would you make to FDK given the answer to (3)

Reference no: EM132255779

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