Hello everyone,
I did not get why we multiplied the failure rate by the replacement cost of battery, while in case of failure, 5000 EUR is the cost of replacement, not 1100 EUR.
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II. Analysis - 2. What could be possible reasons? - a) Idea 1: Battery warranty
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Hi there,
the company wants to cover the cost of such warranty. To do so, they calculate the Expected Cost, which is a function of
- the cost per such incident (= $5,000 replacement cost); AND
- the probability of such event happening (22%)
Think about it like an insurance - if only 22 out of 100 cars typically face such battery problem, then I will not incur replacement cost for all cars but only for the 22 where it actually happens.
Hope this helps.
Regards, Andi
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Hi there!
To have a higher response rate here and also to get more out of the exercise, I'd recommend you give a first go to the answer yourself. Then we can chip in with feedback.
Best,
Cristian
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They are selling warranty, which is basically insurance. The cost of insurance is the cost of a negative event * probability of said event
So the replacement cost is 5000€. But they will only incur at that cost 22% of the time. 78% of the time their cost will be 0€.
This is why you multiply 22%*5000€. On average, across all of their vehicle base, they will have a cost of 22%*5000€ per insured vehicle.
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Hi there,
I'm super concerned by the fact that you've asked 3 questions on just 1 single case here.
(Please don't feel like you can't ask questions by the way!)
But it does sound like you could really use a reset in how you're approach math (learning how to figure it out yourself).
Consider getting a coach. Check out rocketblocks (for math/charts/exhibits only). Review how you approach math (learn to take a step back, break it down, and figure it out yourself in order to maximize learning)
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