Question

A toaster oven costing $130 offers an extended warranty for 25% of the purchase price. If the local repair shop will fix a toaster oven for $8, how many times must the toaster oven break in order for the warranty to pay for itself?
a.
five
b.
six
c.
four
d.
one

Answer 1

Warranty cost = 25% of \$130 = \$32.50.
Each repair costs \$8, so break-even number = 32.50 / 8 = 4.0625.
You need at least 5 repairs for the warranty to pay for itself. Answer: a. five