Problem $7-6$ Decision Trees

Ang Electronics, Incorporated, has developed a new mesh network. If successful, the

present value of the payoff $($when the product is brought to market$)$ is $$35$ million. If the

mesh network fails, the present value of the payoff is $$13$ million. If the product goes

directly to market, there is a $60$ percent chance of success. Alternatively, the company

can delay the launch by one year and spend $$1\mathrm{.}4$ million to test market the mesh

network. Test marketing would allow the firm to improve the product and increase the

probability of success to $90$ percent. The appropriate discount rate is $10$

percent. Calculate the NPV of going directly to market and the NPV of test marketing

before going to market. $($Do not round intermediate calculations and enter your

answers in dollars, not millions of dollars, rounded to the nearest whole number, e$.$g$.,$

$1,234,567.$

Should the firm conduct test marketing?

No

Yes