Question
Decision Trees. B&B has a new baby powder ready to market. If the firm goes directly to the market with the product, there is only
Decision Trees. 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 55 percent chance of success. However, the firm can conduct customer segment research, which will take a year and cost RM1.2 million. By going through research, B&B will be able to better target potential customers and will increase the probability of success to 70 percent. If successful, the baby powder will bring a present value profit (at time of initial selling) of RM19 million. If unsuccessful, the present value payoff is only RM6 million. Should the firm conduct customer segment research or go directly to market? The appropriate discount rate is 15 percent.
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