Homework 4.

Mail-order computers

A mail-order computer company offers a 30-day money-back guarantee to any customer who is not completely satisfied with its product.

The company realizes a profit of $200 for each computer sold but assumes a loss of $100 for shipping and handling for each unit returned.

The probability that a unit is returned is 0.08.

- (a) what is the expected gain for each unit shipped?

- (b) If the distributor ships 4000 units per year, what is the expected annual profit?