Calculate the npv of hiring the consulting company

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The manager of a growing firm is considering the launch of a new product. If the product goes directly to the market, there is a 60 percent chance of success. However, for $200,000, the manager can hire a consulting company to study the market and the characteristics of the peer products. Hiring the consulting will increase the product's chance of success to 70 percent. Half of the consulting cost will be paid immediately. The remaining half will be paid in the future, at time t=1. If the firm successfully launches the product, the payoff will be $1.87 million. If the product is a failure, the NPV is zero. The rate of return on the market is 5 percent.

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

B. Calculate the NPV of hiring the consulting company.

Reference no: EM132731544

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