Question: Gidget has a new widget to bring to market. If the firm goes directly to market with the product, there is a 55% chance of

Gidget has a new widget to bring to market. If the firm goes directly to market with the product, there is a 55% chance of success. However, the firm can conduct a customer segment research, which will take a year and cost $750,000. By going through research, the company will be able to better target potential customers and will increase the probability of success to 90%. If successful, the widget will bring a present value profit (at time of initial selling) of $5 million. If unsuccessful, the present value profit is only $1 million. The appropriate discount rate is 15%.

Calculate the NPV of going directly to the market?

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