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Anonymous A
on Oct 28, 2020
Global
Question about

warranty calculation

How did they do the following calculation?

Likelihood of failure within the first five years is 22%; expected replacement cost per car sold is € 1,100 which is also the minimum price to be charged to the customer for the replacement warranty.

Thank you

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Top answer
Ian
Coach
on Oct 29, 2020
Top US BCG / MBB Coach - 5,000 sessions |Tech, Platinion, Big 4 | 9/9 personal interviews passed | 95% candidate success

Year 1 (7%) + Year 2 (5%) + Year 3 (4%) + Year 4 (2%) + Year 5 (4%) = 22%

Deleted user
on Oct 28, 2020

Well, Table 1 gives the combined chance of battery failure of 22% in the first 5 years (sum of annual %-ages). The interviewer provides the battery replacement cost of 5k. 22% of 5k is 1.1k.

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Clara
Coach
on Oct 28, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello, it´s just leveraging the data that is stated in the case, table 1. 

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