Question
Gidget has a new widget to bring to market. If the firm goes directly to market with the product, there is a 70% chance of
Gidget has a new widget to bring to market. If the firm goes directly to market with the product, there is a 70% chance of success. However, the firm can conduct customer segment research, which will take a year and cost $1,500,000. By going through research, the company can better target potential customers and increase the probability of success to 85%. If successful, the widget will bring a present value profit (at the time of initial selling) of $50 million. If unsuccessful, the present value profit is only $10 million. The appropriate discount rate is 10%. Calculate the NPV of going directly to the market. (Enter whole numbers, e.g. 5 million should be 5,000,000)
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