ABC Corporation is planning to launch a new product line that has a potential profit of $500,000.
Question:
ABC Corporation is planning to launch a new product line that has a potential profit of $500,000. However, there is also a 30% chance that the product will not be successful, resulting in a loss of $200,000. The company wants to determine whether to launch the product line based on the risk analysis. Additionally, the company has the option to conduct market research to reduce the probability of failure. If the company invests $50,000 in market research, it will reduce the probability of failure to 10%. Should the company invest in market research to reduce the probability of failure, and what is the expected value of the product line with and without market research?
Managerial Decision Modeling With Spreadsheets
ISBN: 9780136115830
3rd Edition
Authors: Nagraj Balakrishnan, Barry Render, Jr. Ralph M. Stair