Lithium cells used to power

digital watches have a

mean lifetime of 8 years

with a standard deviation

of 1.5 years. The Tempus

Watch Company sells a

sealed model of watch with

power cells that are not

replaceable. The watch

costs $9.95, and the

company offers a 5-year

replacement warranty if the

cell fails.

a) What percent of its watches would the

company expect to replace under a

5-year warranty plan?

b) Assume that the company sells 100 000

watches this year, and it costs $5.00 to

replace a defective watch, including

shipping. How much should the

company budget to replace watches

under warranty?

c) An advertising executive suggests

boosting sales by offering a 10-year

warranty. Is this a reasonable idea? Use

calculations similar to parts a) and b) to

provide support for your answer.