Adequate information: Cash flow for success (C S ) = $1,900,000 Cash flow for failure (C F ) = $0 Probability of success when the product goes directly to market = 0.50 Probability of failure when the product goes directly to market = 0.50 Probability of success in case of using the focus group technique = 0.65 Probability of failure in case of using the focus group technique = 0.35 Probability of success in case of using the technique of research of a consulting firm = 0.80 Probability of failure in case of using the technique of research of a consulting firm = 0.20 Cost of conducting research = $345,000 To determine: The action that will result in the highest expected payoff to the firm. Introduction: Net present value is the difference between the aggregate values of cash inflows and the 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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Chapter 7, Problem 7QAP

Summary Introduction

Adequate information:

Cash flow for success (C_S) = $1,900,000

Cash flow for failure (C_F) = $0

Probability of success when the product goes directly to market = 0.50

Probability of failure when the product goes directly to market = 0.50

Probability of success in case of using the focus group technique = 0.65

Probability of failure in case of using the focus group technique = 0.35

Probability of success in case of using the technique of research of a consulting firm = 0.80

Probability of failure in case of using the technique of research of a consulting firm = 0.20

Cost of conducting research = $345,000

To determine: The action that will result in the highest expected payoff to the firm.

Introduction: Net present value is the difference between the aggregate values of cash inflows and the 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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