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What is value of provision that should be shown in accounts

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Reference no: EM132751283

Problem 1: A company has warranties to replace generators supplied by them on an oil rig. The generator costs £1m to replace and six of them are used on the rig. Experience shows that there's a 45% chance of one generator failing a 30% chance of two failing and a 25% chance of three failing. What is the value of the provision that should be shown in the accounts of the company?

A £0 (no provision needed)
B £1.0m
C £1.8m
D £2.0m

Reference no: EM132751283

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