A manager wants to purchase a new piece of processing equipment and must decide on tire number

Question:

A manager wants to purchase a new piece of processing equipment and must decide on tire number of a spare part to order with the new equipment. The spares cost $200 each, and any unused spares will have an expected of $50 each. The probability of usage of parts can be described by the following distribution:

If the part fails and a spare is not available, it will take two days to obtain a replacement and install it. The cost for idle equipment is $400 per day. The spare is expected to cost the same in the future ($200 per unit). What quantity of spares should be ordered?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...