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Calculate the npv of going directly to market now

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Problem - Ang Electronics Inc. has developed a new DVD-R. If the DVD-R is successful, the PV of the payoff (when the product is brought to market) is $22 million. If the DVD-R fails, the PV of the payoff is $9 million. If the product goes directly to market, there is a 50 percent chance of success. Alternatively, Ang can spend $1.5 million immediately and delay the launch by one year to test market the DVD-R. Test marketing would allow the ?rm to improve the product and increase the probability of success to 80 percent. The appropriate discount rate is 11 percent.

(i) Calculate the NPV of going directly to market now.

(ii) Should the firm conduct test marketing?

Reference no: EM133013886

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