UPENN: LOOSE LEAF CORP.FIN W/CONNECT
17th Edition
ISBN: 9781260361278
Author: Ross
Publisher: McGraw-Hill Publishing Co.
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Textbook Question
Chapter 7, Problem 7QP
Decision Trees The manager for a growing firm is considering the launch of a new product. If the product goes directly to market, there is a 50 percent chance of success. For $125,000 the manager can conduct a focus group that will increase the product’s chance of success to 65 percent. Alternatively, the manager has the option to pay a consulting firm $285,000 to research the market and refine the product. The consulting firm successfully launches new products 80 percent of the time. If the firm successfully launches the product the payoff will be $1.8 million. If the product is a failure, the
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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 40% chance of success. For $250,000, the manager can conduct a focus group to increase the probability of success to 60%. Alternatively, the manager can pay a consulting firm $4,000,000 to research the market and refine the product. The consulting firm successfully launches new products 80% of the time. If the firm successfully launches the widget, the payoff will be $20 million. If the product is a failure, the NPV is $0.
Based on your analysis, ABC should:
a. take the product directly to market
b. hire the consulting firm
c. conduct a focus group
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.
Instruction: Please answer the following questions. Submit your answers (word file or PDF). Minimum of words are 300 words.
Questions. Describe the positives and negatives for this development project.
FIGURE 2.1 Project Evaluation and Selection Form
EVALUATION CRITERIA
Investment (5)
Return on Investment
Time to Market
Increase in Market Share
PROJECT EVALUATION AND SELECTION
PROJECT A
$700,000
9.1%
10 months.
2%
Risk
Chance of Success
Comments
Project A: Major competitor already has similar product and may reduce price.
Project B New technology may not work as expected.
Project C Product features may not be accepted in some international markets
Low
High
PROJECT B
$2,100,000
18.3%
16 months
5%
High
Medium
PROJECT C
$1,200,000
11.5%
12 months
3%
Medium
High
Susay at day a
Chapter 7 Solutions
UPENN: LOOSE LEAF CORP.FIN W/CONNECT
Ch. 7 - Forecasting Risk What is forecasting risk? In...Ch. 7 - Sensitivity Analysis and Scenario Analysis What is...Ch. 7 - Prob. 3CQCh. 7 - Break-Even Point As a shareholder of a firm that...Ch. 7 - Prob. 5CQCh. 7 - Real Options Why does traditional NPV analysis...Ch. 7 - Real Options The Mango Republic has just...Ch. 7 - Prob. 8CQCh. 7 - Prob. 9CQCh. 7 - Project Analysis You are discussing a project...
Ch. 7 - Sensitivity Analysis and Break-Even Point We are...Ch. 7 - Prob. 2QPCh. 7 - Prob. 3QPCh. 7 - Prob. 4QPCh. 7 - Prob. 5QPCh. 7 - Decision Trees Ang Electronics. Inc., has...Ch. 7 - Decision Trees The manager for a growing firm is...Ch. 7 - Prob. 8QPCh. 7 - Prob. 9QPCh. 7 - Financial Break-Even Niko has purchased a brand...Ch. 7 - Prob. 11QPCh. 7 - Prob. 12QPCh. 7 - Project Analysis You are considering a new product...Ch. 7 - Project Analysis McGilla Golf has decided to sell...Ch. 7 - Prob. 17QPCh. 7 - Prob. 18QPCh. 7 - Prob. 19QPCh. 7 - Prob. 20QPCh. 7 - Prob. 21QPCh. 7 - Option to Wait Hickock Mining is evaluating when...Ch. 7 - Abandonment Decisions Allied Products, Inc., is...Ch. 7 - Prob. 24QPCh. 7 - Scenario Analysis You are the financial analyst...Ch. 7 - Scenario Analysis Consider a project to supply...Ch. 7 - Sensitivity Analysis In Problem 26, suppose youre...Ch. 7 - Prob. 28QPCh. 7 - Prob. 29QPCh. 7 - Financial Break-Even The Cornchopper Company is...
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