The manager for a growing firm is considering the launch of a new product. If the product goes directly to market, there is a 60 percent chance if success. For $166,000, the manager can conduct a focus group that will increase the product's chance of success to 75 percent. Alternatively, the manager has the option to pay a consulting firm $381,000 to research the market and refine the product. The consulting firm successfully launches new products 90 percent of the time. If the firm successfully launches the product, the payoff will be $1.81 million. If the product is a failure, the NPV is zero.

Calculate the NPV for each option available for the project.

NPV

Go to market now $

Focus group $

Consulting firm $

Which action should the firm undertake?

Focus group

Consulting firm

Go to market