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?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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?
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