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Calculate the NPV of going directly to the market

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Question - Gidget has a new widget to bring to market. If the firm goes directly to market with the product, there is a 55% chance of success.  However, the firm can conduct a customer segment research, which will take a year and cost $750,000.  By going through research, the company will be able to better target potential customers and will increase the probability of success to 90%.  If successful, the widget will bring a present value profit (at time of initial selling) of $5 million.  If unsuccessful, the present value profit is only $1 million.  The appropriate discount rate is 15%.

Required -

1. Calculate the NPV of going directly to the market.

2. Calculate the NPV for conducting customer segment research.

Reference no: EM133063281

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