Question: A machine can be designed with various degrees of reliability. The cost of loss resulting from a failure is Rs 25000. At the extra costs

A machine can be designed with various degrees of reliability. The cost of loss resulting from a failure is Rs 25000. At the extra costs shown below, various designs can be built to reduce the chance of failure. The higher cost designs will also create higher annual disbursements for insurance, property, taxes and certain maintenance and repair costs. The economic life is 5 years with zero salvage and the minimum required rate of return is 20%. assume required information to solve this problem if not given.

Investment for reliability,Rs

Operating disbursement per year, Rs

Reliability of the machine

0

0

0.000

5000

300

0.500

10000

600

0.700

15000

900

0.850

20000

1.200

0.940

25000

1500

0.990

30000

1800

0.995

35000

2100

0.999

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