Benjamin is an engineer with the Lego Group in Bellund, Denmark, manufacturers of Lego toy construction blocks. He is responsible for the economic analysis of a new production method of special-purpose Lego parts. Method 1 will have an initial cost of $400,000, an annual operating cost of $140,000, and a life of three years. Method 2 will have an initial cost of $600,000, an operating cost of $100,000 per year, and a six-year life. Assume 10% salvage values for both methods. If Lego Industries uses a MARR of 15% per year, which method should it select on the basis of a present worth analysis?
Benjamin is an engineer with the Lego Group in Bellund, Denmark, manufacturers of Lego toy construction blocks. He is responsible for the economic analysis of a new production method of special-purpose Lego parts. Method 1 will have an initial cost of $400,000, an annual operating cost of $140,000, and a life of three years. Method 2 will have an initial cost of $600,000, an operating cost of $100,000 per year, and a six-year life. Assume 10% salvage values for both methods. If Lego Industries uses a MARR of 15% per year, which method should it select on the basis of a present worth analysis?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 18P
Related questions
Question
Benjamin is an engineer with the Lego Group in Bellund, Denmark, manufacturers of Lego toy construction blocks. He is responsible for the economic analysis of a new production method of special-purpose Lego parts. Method 1 will have an initial cost of $400,000, an annual operating cost of $140,000, and a life of three years. Method 2 will have an initial cost of $600,000, an operating cost of $100,000 per year, and a six-year life. Assume 10% salvage values for both methods. If Lego Industries uses a MARR of 15% per year, which method should it select on the basis of a present worth analysis?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning