Question
The Heinrich Tire Company recalled a tire in its subcompact line in December 2016. Costs associated with the recall were originally thought to approximate $62
The Heinrich Tire Company recalled a tire in its subcompact line in December 2016. Costs associated with the recall were originally thought to approximate $62 million. Now, though, while management feels it is probable the company will incur substantial costs, all discussions indicate that $62 million is an excessive amount. Based on prior recalls in the industry, management has provided the following probability distribution for the potential loss (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
Loss Amount | Probability | ||||
$52 million | 20% | ||||
$42 million | 50% | ||||
$32 million
| 30% |
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