TOPIC: EMV question

Hello

Can someone help me resolve this question? how do I tackle these types of questions on the PMp exam?

You are trying to determine whether or not to conduct 100% final system tests of 500 ground-based radar units at the factory. The historical radar field failure rate is 4%; the cost to test each unit in the factory is $10,000; the cost to reassemble each passed unit after the factory test is $2,000; the cost to repair and reassemble each failed unit after factory test is $23,000; and the cost to repair and reinstall each failed unit in the field is $350,000. Using decision tree analysis, what is the expected value if you decide to conduct these tests?

$5.5 million
$5.96 million
$6.42 million
$7 million

Thank you

Farid

Hello Farid,

Please state where you originally found this question. We want to give credit to the original author with all questions posted in our forum.

Thank you!

Of course - I found this question on the Linkedin forum

www.linkedin.com/groups/EMV-question-

Let me know if it is ok to post the questions I found difficult to resolve - I can surely provide the sources as well.

Thank you
Farid

Hi Farid,

I think the correct answer is $6.42 million the details as below:

1- 96% pass the test = cost of testing = 96% * 500 unit * 10k = 5M
2- cost to resemble passed units = 96% * 500 unit * 2k = .96 M
3- cost to resemble and repair each failed unit after the factory test = .04* 500 unit * 23k = .46 M

so the total cost of to conduct the tests is 5M+.96M+.46M = 6.42 million

and the cost of not performing the test is "the cost to repair and reinstall each failed unit in the field" which = 0.04% * 500 * 350 K = 7 million.

so in this case conducting the tests would be the best option (but this is not part of the question )

other thought would be helpful as well.

Your calculations are wrong. e.g. 96% * 500 * 10000 = 4.800,

I think $6.42M is correct because it calculates not only the testing cost for all 500 units but also takes into account the reassemble cost of passed units ( 480 units ) plus the cost of repair & reassemble of 4% failed units ( 20 units )