Ang Electronics, Inc., has developed a new mesh network. If successful, the present value of the payoff
Question:
Ang Electronics, Inc., has developed a new mesh network. If successful, the present value of the payoff (when the product is brought to market) is $29 million. If the mesh network fails, the present value of the payoff is $9.2 million. If the product goes directly to market, there is a 50 percent chance of success. Alternatively, the company can delay the launch by one year and spend $2.1 million to test market the mesh network. Test marketing would allow the firm to improve the product and increase the probability of success to 80 percent. The appropriate discount rate is 11 percent. Should the firm conduct test marketing?
Step by Step Answer:
Corporate Finance
ISBN: 9781265533199
13th International Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe