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Osceola Electronics, Inc., has developed a new HD DVD. If the HD DVD is successful, the...

Osceola Electronics, Inc., has developed a new HD DVD. If the HD DVD is successful, the present value of the payoff (at the time the product is brought to market) is $28.9 million. If the HD DVD fails, the present value of the payoff is $7.8 million. If the product goes directly to market, there is a 60 percent chance of success. Alternatively, Osceola can delay the launch by one year and spend $1.39 million to test-market the HD DVD. Test-marketing would allow the firm to improve the product and increase the probability of success to 80%. The appropriate discount rate is 10%.

What is the NPV of test-marketing before going to market? (Round answer to 2 decimal places. Do not round intermediate calculations)

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Answer #1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

SOLVED FULL SUM

YOUR NPV OF TEST MARKETING = 21.05 MILLION [ROUNDED TO 2 DECIMALS]

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