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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 $21.2 million. If the DVDR fails, the present value of the payoff is $9.1 million. If the product goes directly to market, there is a 43 percent chance of success. Alternatively, Ang can delay the launch by one year and spend $1.5 million to test market the DVDR. Test marketing would allow the firm to improve the product and increase the probability of success to 81 percent. The appropriate discount rate is 8 percent.

Required:
(a) find out the NPV of going directly to market now.
NPV $ ________

(b)find out the NPV of test marketing first.
NPV $_________

 

Basic Finance, Finance

  • Category:- Basic Finance
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