A Component Must Have Reliability of

question 57

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? (Hint: for the inferior components,you first need to determine the number of them that would be needed to ensure overall reliability of .9925. )

---

Definitions:

Interest Revenue

Income earned by a company for lending its money or other assets to another entity.

Sales-Type Lease

A sales-type lease is a financing arrangement where the lessor recognizes immediate profit on the assets leased, similar to a sale.

Present Value

Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return.

Implicit Rate

The interest rate inherently included in the lease payments, reflecting the lessor's cost of financing.