Risk patterns in Cash Flows: The case of New Product Introduction EXAMPLE: McGregor Whiskey Company is proposing to market diet scotch. The product will be test-marketed for 2 years in southern California ( a natural choice) at an initial cost of $500,000. This test launch is not expected to produce profits but should reveal consumer preferences. There is a 60% chance that demand will be satisfactory. In this case, McGregor will spend $5 million to launch the scotch nationwide and will receive an expected annual profit of $700,000 in perpetuity. If demand is not satisfactory, diet scotch will be withdrawn. You determine the product, if launched, will have a 12% required rate of return. However, the initial test market phase is viewed as much riskier, so the required rate of return over this period is 40% What is the NPV of the diet scotch project