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Ostrovityanka [42]
2 years ago
15

A company has developed a new smart clock. If the clock is successful, the present value of the payoff (at the time the product

is brought to market) is $17 million. If the clock fails, the present value of the payoff is $5 million. If the clock goes directly to market, there is a 50 percent chance of success. Alternatively, the company can delay the launch by one year and spend $900,000 to test-market the clock. Test-marketing would allow the company to improve the clock and increase the probability of success to 75%. The appropriate discount rate is 10%. Should the company conduct test-marketing?
a. No, because NPV is lower by $748,643
b. No, because NPV is lower by $559,164
c. Yes, because NPV is higher by $827,273
d. Yes, because NPV is higher by $674,350
e. Yes, because NPV is higher by $754,281
Business
1 answer:
timama [110]2 years ago
5 0
The correct answer is letter C
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