THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING

question 87

Essay

THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING:
As a purchasing agent,you are responsible for selecting sources of supply for manufactured components to use in your firm's production process.The salesman for a certain supplier has indicated that they can supply an electronic sub-assembly that has a defect rate of 1.1%-well below your current supplier's defect rate.You accept 100 sub-assemblies for evaluation,and find that there were four defects.
-Using the Poisson approximation to the binomial,how likely is it to get exactly four defects out of 100?

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Definitions:

Required Return

The minimum expected return on an investment necessary to compensate for the risk taken by the investor, including the time value of money and inflation.

Payback

A method of investment appraisal that calculates the time needed for an investment to generate cash flows sufficient to recover the initial outlay.

Four Year Payback

A capital budgeting method that calculates the time required to recoup the initial investment in a project, specifically over a period of four years.