Question

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 time. If the firm successfully launches the product, the payoff will be $2 million. If the product is a failure, the NPV is $0. |

Calculate the NPV for each option available for the project |

Answer #1

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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...

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 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...

Liberty Products, Inc., is considering a new product launch. The
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next eight years. The company uses a discount rate of 11% for new
product launches. The initial investment is $23 million. Assume
that the project has no salvage value at the end of its economic
life. After the first year, the project can be dismantled and sold
for $18 million after taxes.
a. Ignoring the option to...

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...

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...

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
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product goes directly to market, there is a 60 percent chance of
success. Alternatively, Osceola can delay the launch by one year
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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...

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...

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