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Problem 7-6 Decision Trees Ang Electronics, Incorporated, has developed a new mesh network. If successful, the present value of the payoff (when the product is brought to market) is $35 million. If the mesh network fails, the present value of the payoff is $13 million. If the product goes directly to market, there is a 60 percent chance of success. Alternatively, the company can delay the launch by one year and spend $1.4 million to test market the mesh network. Test marketing would allow the firm to improve the product and increase the probability of success to 90 percent. The appropriate discount rate is 10 percent. Calculate the NPV of going directly to market and the NPV of test marketing before going to market. (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Go to market now Test marketing first Should the firm conduct test marketing? No Yes

Problem 7-6 Decision Trees Ang Electronics, Incorporated, has developed a new mesh network. If successful, the present value of the payoff (when the product is brought to market) is $35 million. If the mesh network fails, the present value of the payoff is $13 million. If the product goes directly to market, there is a 60 percent chance of success. Alternatively, the company can delay the launch by one year and spend $1.4 million to test market the mesh network. Test marketing would allow the firm to improve the product and increase the probability of success to 90 percent. The appropriate discount rate is 10 percent. Calculate the NPV of going directly to market and the NPV of test marketing before going to market. (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Go to market now Test marketing first Should the firm conduct test marketing? No Yes

Essentials Of Investments
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
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Problem 7-6 Decision Trees Ang Electronics, Incorporated, has developed a new mesh network. If successful, the present value of the payoff (when the product is brought to market) is $35 million. If the mesh network fails, the present value of the payoff is $13 million. If the product goes directly to market, there is a 60 percent chance of success. Alternatively, the company can delay the launch by one year and spend $1.4 million to test market the mesh network. Test marketing would allow the firm to improve the product and increase the probability of success to 90 percent. The appropriate discount rate is 10 percent. Calculate the NPV of going directly to market and the NPV of test marketing before going to market. (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Go to market now Test marketing first Should the firm conduct test marketing? No Yes
Transcribed Image Text:Problem 7-6 Decision Trees Ang Electronics, Incorporated, has developed a new mesh network. If successful, the present value of the payoff (when the product is brought to market) is $35 million. If the mesh network fails, the present value of the payoff is $13 million. If the product goes directly to market, there is a 60 percent chance of success. Alternatively, the company can delay the launch by one year and spend $1.4 million to test market the mesh network. Test marketing would allow the firm to improve the product and increase the probability of success to 90 percent. The appropriate discount rate is 10 percent. Calculate the NPV of going directly to market and the NPV of test marketing before going to market. (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Go to market now Test marketing first Should the firm conduct test marketing? No Yes
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