! Required information Lego Group in Bellund, Denmark, manufactures Lego toy construction blocks. The company is considering two methods for producing special-purpose Lego parts. Method 1 will have an initial cost of $360,000, an annual operating cost of $150,000, and a life of 3 years. Method 2 will have an initial cost of $660,000, an operating cost of $120,000 per year, and a 6-year life. Assume 9% salvage values for both methods. Lego uses an MARR of 12% per year. If the evaluation is incorrectly performed using the respective life estimates of 3 and 6 years, will Lego make a correct or incorrect economic decision? Explain your answer. The present worth of method 1 is $150000 and that of method 2 is $120000 Method 1 is selected.
! Required information Lego Group in Bellund, Denmark, manufactures Lego toy construction blocks. The company is considering two methods for producing special-purpose Lego parts. Method 1 will have an initial cost of $360,000, an annual operating cost of $150,000, and a life of 3 years. Method 2 will have an initial cost of $660,000, an operating cost of $120,000 per year, and a 6-year life. Assume 9% salvage values for both methods. Lego uses an MARR of 12% per year. If the evaluation is incorrectly performed using the respective life estimates of 3 and 6 years, will Lego make a correct or incorrect economic decision? Explain your answer. The present worth of method 1 is $150000 and that of method 2 is $120000 Method 1 is selected.
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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Required information
Lego Group in Bellund, Denmark, manufactures Lego toy
construction blocks. The company is considering two methods for
producing special-purpose Lego parts. Method 1 will have an
initial cost of $360,000, an annual operating cost of $150,000,
and a life of 3 years. Method 2 will have an initial cost of
$660,000, an operating cost of $120,000 per year, and a 6-year
life. Assume 9% salvage values for both methods. Lego uses an
MARR of 12% per year.
If the evaluation is incorrectly performed using the respective life estimates of 3
and 6 years, will Lego make a correct or incorrect economic decision? Explain
your answer.
The present worth of method 1 is $ 150000 and that of method 2 is $ 120000
Method 1
is selected.
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