Neco 2023 Commerce Question 47

Mrs. A bought a washing machine for \(\text{₦}120{,}000\). The manufacturer provides a 2‑year warranty that covers only parts. An optional extended service contract for 3 years, covering both parts and labour, costs \(\text{₦}15{,}000\) paid upfront. In any given year, the probability that a part fails is \(8\%\), independent of other years. The cost of a part replacement is \(\text{₦}10{,}000\) and the labour charge for a repair (if not covered) is \(\text{₦}5{,}000\). The warranty covers the part cost but not labour; the extended contract covers both. Assuming the machine is used for 5 years, calculate the expected total cost to the consumer with and without purchasing the extended contract, and state which option has the lower expected cost.