Question: Ang Electronics Inc has developed a new HD DVD If
Ang Electronics, Inc., has developed a new HD DVD. If the HD DVD is successful, the present value of the payoff (at the time the product is brought to market) is $30 million. If the HD DVD fails, the present value of the payoff is $8 million. If the product goes directly to market, there is a 50 percent chance of success. Alternatively, Ang can delay the launch by one year and spend $1.5 million to test market the HD DVD. Test marketing would allow the firm to improve the product and increase the probability of success to 75 percent. The appropriate discount rate is 11 percent. Should the firm conduct test marketing?
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