An automobile company is going to launch a new car inthe coming month which will directly going to impacton its share price. As per the research done by themarketing and financial team, if car launch is successful,the revenue will increase and share price will be $4,500and if car launch is not successful, the revenue will dropand share price will be $3,000. On the day of carlaunch, the company's share price is trading at $3,900.What are the investor's expectations of the company'ssuccess in the car launch and profitability? Answerchoices: a. 86.67% b. 66.67% c. 60.00% d. 100.00%

Here,SharePrice in case of success is $4,500Share Price in case of failure is $3,000Current Share…

Answered: An automobile company is going to…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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ABC Co is considering the launch of a new widget. If the product goes directly to the market, there is a 60% chance of success. For $500,000, the manager can conduct a focus group to increase the probability of success to 65%. Alternatively, the manager can pay a consulting firm $750,000 to research the market and refine the product. The consulting firm successfully launches new products 70% of the time. If the firm successfully launches the widget, the payoff will be $8 million. If the product is a failure, the NPV is $0. Calculate the expected NPV if the managers go directly to the market.

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