Find the expected annual cost for each mower

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Reference no: EM131375488

Hitomi is considering buying a new lawnmower. She has a choice of a Lawn Guy or a Clip Job. Her neighbour, Sam, looked at buying a mower himself a while ago, and gave her the following information on the two types of mowers.

	Lawn Guy	Clip Job
First Cost	$350	$120
Life (years)	10	4
Annual gas	$60	$40
Annual maintenance	$30	$60
Salvage value	0	0

Due to the long life of a Lawn Guy mower and the uncertainty of future gas prices, Hitomi is reluctant to use a single estimate for its life or the annual cost of gas. As for the Clip Job, she is not sure about the annual maintenance cost, since that model has a relatively short life and it may break down easily.

With help from a friend who works at a hardware store, she comes up with the probabilistic estimates shown below for the Lawn Guy's expected life and the cost of gas, and Clip Job's annual maintenance cost. Hitomi's AIAJRR is 5%.

Find the expected annual cost for each mower using the Monte Carlo simulation method. Perform at least 100 trials. Which mower is preferred?

Lawn Guy				Clip Job
Life	Probability	Gas	Probability	Maintenance	Probability
7	0.25	$50	0.2	$50	0.2
8	0.25	60	0.3	60	0.5
9	0.25	70	0.4	70	0.2
10	0.25	80	0.1	80	0.1

Reference no: EM131375488

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