Question

Ang 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 $33 million. If the HD DVD fails, the present value of the payoff is $11 million. If the product goes directly to market, there is a 40 percent chance of success. Alternatively, the company can delay the launch by one year and spend $1.2 million to test-market the HD DVD. Test-marketing would allow the firm to improve the product and increase the probability of success to 70 percent. The appropriate discount rate is 12 percent. Calculate the NPV of going directly to market and the NPV of test-marketing before going to market. (DO NOT ROUND ANSWER!!!!!)

Should the firm conduct test marketing?

Answer #1

Solution:-

First we calculate NPV of Going Directly to Market Now -

NPV = Present Value of Success * Probability of Success + Present Value of Failure * Probability of Failure

NPV = 33,000,000 * 0.40 + 11,000,0000 * 0.60

NPV = $1,98,00,000

To Calculate NPV of test Marketing First -

Initial outlay are given in question and cash inflow are delayed by one year so discounted by one year.

NPV = Present Value of Cash Inflow - Present Value of Cash outflow.

NPV = (33,000,000 * 0.70 + 11,000,000 * 0.30)/(1.12) - 12,00,000

NPV = (23,100,000 + 33,00,000)/1.12 - 12,00,000

NPV = $22,371,428.57

So Company should go for Test Marketing first as highest NPV then Going Directly to Market.

If you have any query related to question then please feel free to ask me in a comment. Thanks.

Ang 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 $33.2 million. If the HD DVD
fails, the present value of the payoff is $11.2 million. If the
product goes directly to market, there is a 50 percent chance of
success. Alternatively, the company can delay the launch by one
year and spend $1.22 million to test-market the HD...

Ang 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 $33.7 million. If the HD DVD
fails, the present value of the payoff is $11.7 million. If the
product goes directly to market, there is a 60 percent chance of
success. Alternatively, the company can delay the launch by one
year and spend $1.27 million to test-market the HD...

6. Decision Trees. Ang. 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 $29 million. If the HD DVD fails, the present
value of the payoff is $8.5 million. If the product goes
directly to market, there is a 55 percent chance of success.
Alternatively, the company can delay the launch by one year and
spend $1.4 million to test-market the HD
DVD. Test-marketing would...

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....

Problem 9-6 Decision Trees
Ang 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 $34.4 million. If the HD DVD
fails, the present value of the payoff is $12.4 million. If the
product goes directly to market, there is a 60 percent chance of
success. Alternatively, the company can delay the launch by one
year and spend $1.34 million...

Ang Electronics, Inc., has developed a new DVDR. If the DVDR is
successful, the present value of the payoff (when the product is
brought to market) is $33.9 million. If the DVDR fails, the present
value of the payoff is $11.9 million. If the product goes directly
to market, there is a 40 percent chance of success. Alternatively,
Ang can delay the launch by one year and spend $1.29 million to
test market the DVDR. Test marketing would allow the...

Innova has developed a new smart watch. If the watch is
successful, the present value of the payoff (at the time the
product is brought to market) is $32 million. If the equipment
fails, the present value of the payoff is $8 million. If the watch
goes directly to market, there is a 50 percent chance of success.
Alternatively, Innova can delay the launch by one year and spend
$2.4 million to test-market the watch. Test-marketing would allow
the firm...

The manager for a growing firm is considering the launch of a
new product. If the product goes directly to market, there is a 60
percent chance of success. For $185,000, the manager can conduct a
focus group that will increase the product’s chance of success to
75 percent. Alternatively, the manager has the option to pay a
consulting firm $400,000 to research the market and refine the
product. The consulting firm successfully launches new products 90
percent of the...

The manager for a growing firm is considering the launch of a
new product. If the product goes directly to market, there is a 40
percent chance of success. For $180,000 the manager can conduct a
focus group that will increase the product’s chance of success to
55 percent. Alternatively, the manager has the option to pay a
consulting firm $395,000 to research the market and refine the
product. The consulting firm successfully launches new products 70
percent of the...

The manager for a growing firm is considering the launch of a
new product. If the product goes directly to market, there is a 40
percent chance of success. For $180,000 the manager can conduct a
focus group that will increase the product’s chance of success to
55 percent. Alternatively, the manager has the option to pay a
consulting firm $395,000 to research the market and refine the
product. The consulting firm successfully launches new products 70
percent of the...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 4 minutes ago

asked 6 minutes ago

asked 37 minutes ago

asked 40 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago