A Component Must Have Reliability of

question 33

Essay

A component must have reliability of .9925. Two technologies are available for this component: one produces a component with .999 reliability at a cost of $2000. Another produces a component with .73 reliability at a cost of $450. Which is cheaper: one high quality component or a parallel set of inferior components?

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Definitions:

Stockholders' Equity

The ownership stake of shareholders in a corporation, which is the value left over from the assets after liabilities have been taken out.

Treasury Stock

Shares that were issued and later reacquired by the company, reducing the amount of outstanding stock.

Par Common Stock

The nominal value assigned to share of common stock, as specified in the corporate charter, which represents the minimum price shares can be issued.

Cost Method

An accounting method used to value investments, where the investment is recorded at its acquisition cost without recognizing any changes in market value.