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 $33.2 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 DVD. Test-marketing would allow the firm to improve the product and increase the probability of success to 80 percent. The appropriate discount rate is 11 percent. |

Calculate the NPV of going directly to market and the NPV of test-marketing before going to market. |

Answer #1

Given the following information

**Payoff**:

Success $ 33.20

Failure $ 11.20

**Probability of success and failue if product directly
goes to market**

Success 0.5

Failure 0.5

**Probability of success and failue if the test marketing
before go to market**

Success 0.8

Failure 0.2

Cost for test market $ 1.22

**NPV** **of** **going**
**directly** **to**
**market**

Payoff = (33.2 × 0.5) +(11.2 × 0.5) = $ 22.20

NPV = 22.20/(1+0.11) = **$ 20**

**NPV of going to market after test market**

Payoff = [(33.2 - 1.22) × 0.8] + [(11.2 -1.22)×0.2] = $27.58

NPV = 27.58/(1+0.11)^{2} = **$ 22.38**

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...

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 1 minute ago

asked 40 minutes ago

asked 40 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago