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A company estimates that 8% of their products will fail after the original warranty period but within 2 years of the purchase, with a replacement cost of $300. If they want to offer a 2 year extended warranty, what price should they charge so that they'll break even (in other words, so the expected value will be 0)

Respuesta :

Answer:

Price charge = $24

Explanation:

Below is the calculation for price at break-even.

Percentage of fail product = 8%

Time duration = 2 years

Replacement cost = $300

Expected value = 8% x 300 = 24

The company has to pay 24 so the company can sell the extended warranty at the price of 24 in order to get break-even.

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