
a)
Go to market now:
NPV = Probability of success * payoff
NPV = 0.4*1,950,000
NPV = $780,000
Focus group:
NPV = focus group expense + probability of success* payoff
NPV = 180,000 + 0.55*1,950,000
NPV = 180,000 + 1,072,500
NPV = 892,500
Consulting firm:
NPV = consulting fee + probability of success* payoff
NPV = 395,000 + 0.7*1,950,000
NPV = 395,000 + 1,365,000
NPV = 970,000
b)
The firm should go with CONSULTING FIRM option since it has the highest NPV
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