PRIN.OF CORPORATE FINANCE >BI<
12th Edition
ISBN: 9781260431230
Author: BREALEY
Publisher: MCG CUSTOM
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Chapter 10, Problem 24PS
a)
Summary Introduction
To discuss: The present situation by drawing decision tree.
b)
Summary Introduction
To determine: Whether the purchase of piston plane will expand when demand turns out to be high in the first year.
c)
Summary Introduction
To determine: Whether person X recommend that person M buy the turboprop or the piston-engine plane today.
d)
Summary Introduction
To compute: The
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Gidget has a new widget to bring to market. If the firm goes directly to market with the product, there is a 60% chance of success. However, the firm can conduct customer segment research, which will take a year and cost $5,000,000. By going through research, the company can better target potential customers and increase the probability of success to 75%. If successful, the widget will bring a present value profit (at the time of initial selling) of $90 million. If unsuccessful, the present value profit is only $15 million. The appropriate discount rate is 10%.
Calculate the NPV for conducting customer segment research. (Enter whole numbers, e.g. 5 million should be 5,000,000)
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.
C&D has a new baby powder ready to market. If the firm goes directly to the marketwith the product, there is only a 60 percent chance of success. However, the firm can conduct customer segment research, which will take a year and cost $550,000. By going through research, B&B will be able to better target potential customers and will increase the probability of success to 75 percent. If successful, the baby powder will bring a present value profit (at time of initial selling) of $26 million. If unsuccessful, the present value profit is only $4.2 million. Should the firm conduct customer segment research or go directly to market? The appropriate discount rate is 12 percent.
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Chapter 10 Solutions
PRIN.OF CORPORATE FINANCE >BI<
Ch. 10 - Capital budgeting process True or false? a. The...Ch. 10 - Prob. 2PSCh. 10 - Prob. 3PSCh. 10 - Project analysis True or false? a. Sensitivity...Ch. 10 - Prob. 5PSCh. 10 - Real options True or false? a. Decision trees can...Ch. 10 - Prob. 7PSCh. 10 - Prob. 9PSCh. 10 - Prob. 10PSCh. 10 - Break-even analysis Break-even calculations are...
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