B&B has a new baby powder ready to market. If the firm goes directly to the market
Question:
B&B has a new baby powder ready to market. If the firm goes directly to the market with the product, there is only a 60 percent chance of success. However, the firm can conduct customer segment research, which will take a year and cost $650,000. By going through research, the company will be able to better target potential customers and will increase the probability of success to 75 percent. If successful, the baby powder will bring a present value profit (at time of initial selling) of $29 million. If unsuccessful, the present value profit is only $5.7 million. Should the firm conduct customer segment research or go directly to market? The appropriate discount rate is 12 percent.
Step by Step Answer:
Corporate Finance Core Principles And Applications
ISBN: 9781260571127
6th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan