A company is trying to decide whether to undertake a marketing campaign before launching a new product. The campaign would cost £30,000. The project will require an investment of £500,000 and the present value of the future cashflows if it turns out to be highly successful or less successful (whether or not it has the marketing campaign) are given below. The marketing will only affect how likely it is to be successful. PV of operating cashflows Probability if no marketing Probability if marketing done Highly successful 800,000 0.6 0.65 Less successful 250,000 0.4 0.35 Based on expected values, the company should A. undertake the marketing and achieve an ENPV of £77,500 B. undertake the marketing and achieve an ENPV of £80,000 C. not undertake the marketing and achieve an ENPV of £77,500 D. not undertake the marketing and achieve an ENPV of £80,000
7. A company is trying to decide whether to undertake a marketing campaign before launching a new product. The campaign would cost £30,000.
The project will require an investment of £500,000 and the
|
|
PV of operating cashflows |
Probability if no marketing |
Probability if marketing done |
|
Highly successful |
800,000 |
0.6 |
0.65 |
|
Less successful |
250,000 |
0.4 |
0.35 |
Based on expected values, the company should
| A. |
undertake the marketing and achieve an ENPV of £77,500 |
|
| B. |
undertake the marketing and achieve an ENPV of £80,000 |
|
| C. |
not undertake the marketing and achieve an ENPV of £77,500 |
|
| D. |
not undertake the marketing and achieve an ENPV of £80,000 |
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