Question
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
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 $370,000, an annual operating cost of $115,000, and a life of 3 years. Method 2 will have an initial cost of $570,000, an operating cost of $150,000 per year, and a 6-year life. Assume 8% salvage values for both methods. Lego uses an MARR of 15% per year.
Which method should it select on the basis of a present worth analysis?
The present worth of method 1 is $____ and that of method 2 is $_____ .
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