ABC Co is considering the launch of a new widget. If the product goes directly to the market, there is a 52% chance of success. For $150,000 the manager can conduct a focus group that will increase the probability of success to 65%. Alternatively, the manager can pay a consulting firm $400,000 to research the market and refine the product. The consulting firm successfully launches new products 85% of the time. If the firm successfully launches the widget, the payoff will be $2 million. If the product is a failure, the NPV is $0.

1. Calculate the expected NPV if the managers hire the consulting firm.

2. based on your analysis, ABC should:

> Cannot be determined

> take the product directly to market

> Hire the consulting firm

> Conduct a focus group