Question
Say that you are a manager at a firm like LGI Technology, a lighting company that produces LED lights. Currently, your firm manufactures the LEDs
Say that you are a manager at a firm like LGI Technology, a lighting company that produces LED lights. Currently, your firm manufactures the LEDs it uses in-house. Technological advances have led to a new type of LED. Your firm can continue to produce the more advanced LEDs by buying new machinery for an immediate payment of $80,000,000. You determine that this machinery will enable your firm to produce 500,000,000 LEDs for this year and each of the next 4 years. After that, a still newer technology will necessitate another type LED and will make the machinery valueless. The machinery will enable your firm to produce LEDs at a cost of $.10 each. Alternatively, your firm can contract with suppliers to buy the LEDs for $.12 each. Suppose that if your firm continues to manufacture its LEDs, it will pay the cost at the end of the year and if your firm buys LEDs from outside suppliers, it will pay the suppliers at the end of the year.
If you use a discount rate of 6 percent, the net present value of producing LEDs internally is enter your response here dollars.
(Round your answer to two decimal places. Enter a minus sign if your answer is negative.)
Please show how to solve problem.
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