Question
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The manager for a growing firm is considering the launch of a new product. If 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 50 percent chance of success. For $184,000, the manager can conduct a focus group that will increase the product’s chance of success to 65 percent. Alternatively, the manager has the option to pay a consulting firm $399,000 to research the market and refine the product. The consulting firm successfully launches new products 80 percent of the time. If the firm successfully launches the product, the payoff will be $1.99 million. If the product is a failure, the NPV is zero. Calculate the NPV for each option available for the project.
| NPV | ||
| Go to market now | $ | |
| Focus group | $ | |
| Consulting firm | $ | |
Which action should the firm undertake?
Go to market now
Focus group
Consulting firm
Solutions
Expert Solution
Solution :
The NPV for each of the options is
a. Go to market now = $ 995,000
b. Focus group = $ 1,109,500
c. Consulting Firm = $ 1,193,000
The firm should undertake the option of consulting firm as the NPV for the same is the highest at $ 1,193,000
Please find the attached screenshot of the excel sheet containing the detailed calculation for the above solution
jeff jeffy answered 1 year agoRelated Solutions
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