What is the anticipated financial benefit or loss for the firm on each contract if the warrantee costs $15.95 for a year? (NOTE: Keep in mind that regardless of whether a claim is made, the consumer will pay for the warranty upfront.)
A $150 eReader comes with a warranty from an electronics business that covers theft (T) and accidental damage (AD) . Due to the high expense of repairing an eReader, it is more cost-effective for the business to provide the customer a complete refund to go toward another one. There is a 5.1% possibility that an AD (Accidenal Claim) claim will be made in any given year. Assume there can only be one claim made (not one of each type).
Customers who report an eReader as stolen will get a reimbursement for 80% of the item's full price. A Theft (T) claim is likely to be submitted 3.5% of the time in any given year.
What is the anticipated financial benefit or loss for the firm on each contract if the warrantee costs $15.95 for a year?
(NOTE: Keep in mind that regardless of whether a claim is made, the consumer will pay for the warranty upfront.)
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