Considering test marketing for your new product

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Reference no: EM131010490

You are considering test marketing for your new product. There is a 30 percent chance that the results of the test marketing will be positive, in which case the expected NPV of the project be $50 million; but there is also a 70 percent chance that the test marketing results will be negative, in which case the expected NPV of the project would be a negative $30 million. Or, you can wait until next year, when your competition introduces similar products, when there is a 30 percent chance of positive market conditions but with expected NPV of only $10 million, due primarily to the increased competition. What is the maximum you would be willing to budget for test marketing? (Hint: Think of this as if you were drilling for oil, and assume zero as the cost of capital.)

Reference no: EM131010490

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