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
Year 1 (7%) + Year 2 (5%) + Year 3 (4%) + Year 4 (2%) + Year 5 (4%) = 22%
Hello, it´s just leveraging the data that is stated in the case, table 1.
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.
