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Problem - Automobile batteries to perform sufficiently for as long as the person that owned it keeps the car.
Car industry data show that only 20% of car owners retain their cars for 3 years or more. Data from the past suggest the following data:
# Years Owned
Probability of Battery Failure
Battery Exchange Costs
% Failed Batteries Returned
Less than 3
0.2
$50
75%
3 or more
0.6
$20
50%
Required - If 50,000 batteries were sold this year, what is the estimated warranty cost?
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