Problem 5) A stereo system has the following 7 independent parts: Radio with probability of failure within one year after purchase of 0.025%, CD player with probability of failure within one year after purchase of 0.047%, a turntable with probability of failure within one year after purchase of 0.075%, and 4 identical speakers each with probability of failure within one year after purchase of 0.054%. Engineers design electronic systems to have as many independent parts as possible so that if one part fails it does not increase the probability that other parts will also fail. A one year warranty is given on all of these parts for the first year after purchase of this stereo system. This company sells 150,000 of these stereo systems in one year and it estimates that a single use of this warranty has an average cost of $325 to the company. The company also estimates that when any of these parts fails only 80% of these parts will be returned to them for repair under the warranty.

What is the estimated total cost of this warranty to the company for one year?

Possible Answers)

A) $141,352.47

B) $118,352.47

C) $105,352.47

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