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Ang Electronics, Inc., has developed a new HD DVD. If the HD DVD is successful, the present value of the payoff (at the time the
Ang Electronics, Inc., has developed a new HD DVD. If the HD DVD is successful, the present value of the payoff (at the time the product is brought to market) is $34.7 million. If the HD DVD fails, the present value of the payoff is $12.7 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 $1.37 million to test-market the HD DVD. 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 nearest whole dollar amount, e.g., 1,234,567.) |
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