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Ang Electronics, Inc

Price: $4.99


QUESTIONS and PROBLEMS

6. Decision Trees - Ang Electronics, Inc., has developed a new DVDR. If the DVDR is successful, the present value of the payoff (which the product is brought to market) is $34million. If the DVDR fails, the present value of the payoff is $12 million. If the product goes directly to market, there is a 50 percent chance of success. Alternatively, Ang can delay the launch by one year and spend $1.3 million to test market the DVDR. Test marketing would allow the firm to improve the product and increase the probability of success to 80 percent. The appropriate discount rate is 11 percent. Should the firm conduct test marketing?

7. Decision Trees – 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 $175,000 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 $390,000 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 $1.9 million. If the product is a failure, the NPV is Zero. Which action will result in the highest expected payoff to the firm?

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