Adequate information: Cash flow for success (C S ) = $24,000,000 Cash flow for failure (C F ) = $8,500,000 Probability of success when product is directly going to the market = 0.50 Probability of failure when product is directly going to the market = 0.50 Probability of success when product is going to the test market = 0.80 Probability of failure when product is going to the test market = 0.20 Amount spent on testing (C 0 ) = $1,200,000 Appropriate discount rate (r) = 11% To determine: Whether the test marketing should be conducted or not. Introduction: Net present value is the difference between the aggregate values of cash inflows ad aggregate value of cash outflows for a particular period of time. It is a capital budgeting technique that evaluates various investment proposals.

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Answer 1

Question

Chapter 7, Problem 6QAP

Summary Introduction

Adequate information:

Cash flow for success (C_S) = $24,000,000

Cash flow for failure (C_F) = $8,500,000

Probability of success when product is directly going to the market = 0.50

Probability of failure when product is directly going to the market = 0.50

Probability of success when product is going to the test market = 0.80

Probability of failure when product is going to the test market = 0.20

Amount spent on testing (C₀) = $1,200,000

Appropriate discount rate (r) = 11%

To determine: Whether the test marketing should be conducted or not.

Introduction: Net present value is the difference between the aggregate values of cash inflows ad aggregate value of cash outflows for a particular period of time. It is a capital budgeting technique that evaluates various investment proposals.

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Answer 2

Question

Chapter 7, Problem 6QAP

Summary Introduction

Adequate information:

Cash flow for success (C_S) = $24,000,000

Cash flow for failure (C_F) = $8,500,000

Probability of success when product is directly going to the market = 0.50

Probability of failure when product is directly going to the market = 0.50

Probability of success when product is going to the test market = 0.80

Probability of failure when product is going to the test market = 0.20

Amount spent on testing (C₀) = $1,200,000

Appropriate discount rate (r) = 11%

To determine: Whether the test marketing should be conducted or not.

Introduction: Net present value is the difference between the aggregate values of cash inflows ad aggregate value of cash outflows for a particular period of time. It is a capital budgeting technique that evaluates various investment proposals.

Expert Solution & Answer

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Answer 3

Question

Chapter 7, Problem 6QAP

Summary Introduction

Adequate information:

Cash flow for success (C_S) = $24,000,000

Cash flow for failure (C_F) = $8,500,000

Probability of success when product is directly going to the market = 0.50

Probability of failure when product is directly going to the market = 0.50

Probability of success when product is going to the test market = 0.80

Probability of failure when product is going to the test market = 0.20

Amount spent on testing (C₀) = $1,200,000

Appropriate discount rate (r) = 11%

To determine: Whether the test marketing should be conducted or not.

Introduction: Net present value is the difference between the aggregate values of cash inflows ad aggregate value of cash outflows for a particular period of time. It is a capital budgeting technique that evaluates various investment proposals.

Expert Solution & Answer

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Answer 4

Question

Chapter 7, Problem 6QAP

Summary Introduction

Adequate information:

Cash flow for success (C_S) = $24,000,000

Cash flow for failure (C_F) = $8,500,000

Probability of success when product is directly going to the market = 0.50

Probability of failure when product is directly going to the market = 0.50

Probability of success when product is going to the test market = 0.80

Probability of failure when product is going to the test market = 0.20

Amount spent on testing (C₀) = $1,200,000

Appropriate discount rate (r) = 11%

To determine: Whether the test marketing should be conducted or not.

Introduction: Net present value is the difference between the aggregate values of cash inflows ad aggregate value of cash outflows for a particular period of time. It is a capital budgeting technique that evaluates various investment proposals.

Expert Solution & Answer

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Answer 5

Chapter 7, Problem 6QAP

Summary Introduction

Adequate information:

Cash flow for success (C_S) = $24,000,000

Cash flow for failure (C_F) = $8,500,000

Probability of success when product is directly going to the market = 0.50

Probability of failure when product is directly going to the market = 0.50

Probability of success when product is going to the test market = 0.80

Probability of failure when product is going to the test market = 0.20

Amount spent on testing (C₀) = $1,200,000

Appropriate discount rate (r) = 11%

To determine: Whether the test marketing should be conducted or not.

Introduction: Net present value is the difference between the aggregate values of cash inflows ad aggregate value of cash outflows for a particular period of time. It is a capital budgeting technique that evaluates various investment proposals.

Answer 6

Chapter 7, Problem 6QAP

Summary Introduction

Adequate information:

Cash flow for success (C_S) = $24,000,000

Cash flow for failure (C_F) = $8,500,000

Probability of success when product is directly going to the market = 0.50

Probability of failure when product is directly going to the market = 0.50

Probability of success when product is going to the test market = 0.80

Probability of failure when product is going to the test market = 0.20

Amount spent on testing (C₀) = $1,200,000

Appropriate discount rate (r) = 11%

To determine: Whether the test marketing should be conducted or not.

Introduction: Net present value is the difference between the aggregate values of cash inflows ad aggregate value of cash outflows for a particular period of time. It is a capital budgeting technique that evaluates various investment proposals.

Answer 7

Chapter 7, Problem 6QAP

Summary Introduction

Adequate information:

Cash flow for success (C_S) = $24,000,000

Cash flow for failure (C_F) = $8,500,000

Probability of success when product is directly going to the market = 0.50

Probability of failure when product is directly going to the market = 0.50

Probability of success when product is going to the test market = 0.80

Probability of failure when product is going to the test market = 0.20

Amount spent on testing (C₀) = $1,200,000

Appropriate discount rate (r) = 11%

To determine: Whether the test marketing should be conducted or not.

Introduction: Net present value is the difference between the aggregate values of cash inflows ad aggregate value of cash outflows for a particular period of time. It is a capital budgeting technique that evaluates various investment proposals.

Answer 8

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Answer 11

Ch. 7 - Forecasting Risk What is forecasting risk? In...Ch. 7 - Sensitivity Analysis and Scenario Analysis What is...Ch. 7 - Prob. 3CQ Ch. 7 - Break-Even Point As a shareholder of a firm that...Ch. 7 - Prob. 5CQ Ch. 7 - Real Options Why does traditional NPV analysis...Ch. 7 - Real Options The Mango Republic has just...Ch. 7 - Prob. 8CQ Ch. 7 - Prob. 9CQ Ch. 7 - Project Analysis You are discussing a project...

Solution Summary: The author calculates the NPV, when the product is going to the test market and will be launched after one year.

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Chapter 7 Solutions