Present value of payoff-when product is brought to market

Assignment Help Financial Management
Reference no: EM131027170

Ang Electronics, Inc., has developed a new DVDR. If the DVDR is successful, the present value of the payoff (when the product is brought to market) is $34.3 million. If the DVDR fails, the present value of the payoff is $12.3 million. If the product goes directly to market, there is a 50 percent chance of success. Alternatively, Ang can delay the launch by one year and spend $1.33 million to test market the DVDR. Test marketing would allow the firm to improve the product and increase the probability of success to 80 percent. The appropriate discount rate is 11 percent.

Calculate the NPV of going directly to market and the NPV of test marketing before going to market. (Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

Go to market now $

Test marketing first $

Should the firm conduct test marketing? Yes No

Reference no: EM131027170

Questions Cloud

Level of accounts receivable to support this sales expansion : Henderson Office Supply is considering a more liberal credit policy to increase sales, but expects that 9 percent of the new accounts will be uncollectible. What is the level of accounts receivable to support this sales expansion? What would be Hende..
What is the total cost of ordering and carrying inventory : Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 49,000 units per year, an ordering cost of $2 per order, and carrying costs of $1.60 per unit. Wha..
Requirements for reformulated gasoline : In the early 1990s, the California Air Resources Board (CARB) started planning its “Phase 2” requirements for reformulated gasoline (RFG). RFG is gasoline blended to tight specifications designed to reduce pollution from motor vehicles. CARB consulte..
What should be the current stock price : Miller's Farm has 120,000 shares of stock outstanding, sales of $850,000, and net income of $55,000. Financial analysts believe the price-earnings ratio for this firm should be 15.8. Given this information, what should be the current stock price? Les..
Present value of payoff-when product is brought to market : Ang Electronics, Inc., has developed a new DVDR. If the DVDR is successful, the present value of the payoff (when the product is brought to market) is $34.3 million. If the DVDR fails, the present value of the payoff is $12.3 million. Calculate the N..
Straight-line depreciation to zero over the four-year life : Consider a four-year project with the following information: Initial fixed asset investment = $460,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $28; variable costs = $18; fixed costs = $150,000; quantit..
Establishment of local collection centers around the country : Neon Light Company of Kansas City ships lamps and lighting appliances throughout the country. Ms. Neon has determined that through the establishment of local collection centers around the country, she can speed up the collection of payments by three ..
Diagram showing cash flows from your perspective as lender : Consider the following problem. You lend your friend $10 today, which s/he promises to repay you in two instalments of $5.25 each. The first instalment is to be paid in two weeks from today; and the second—in four weeks from today. Sketch a diagram s..
What is the financial break-even point for the project : L.J.’s Toys Inc. just purchased a $450,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its six-year economic life. Each toy sells for $27. The variable cost per toy is $12, and the firm incurs f..

Reviews

Write a Review

 

Financial Management Questions & Answers

  What will be the net present value

Christina hopes to open a Deli in 2015. The initial investment will be $85,000. She expects that that the Deli will generate the positive cash flow as indicated below. If she can borrow money at 7% per year, what will be the Net Present Value? Use 7%..

  Calculate earnings per share

Beckett, Inc., has no debt outstanding and a total market value of $140,000. Earnings before interest and taxes, EBIT, are projected to be $32,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 12 pe..

  Considering lockbox system to reduce firm collection times

It takes Cookie Cutter Modular Homes, Inc., about six days to receive and deposit checks from customers. Cookie Cutter’s management is considering a lockbox system to reduce the firm’s collection times. What is the maximum monthly charge Cookie Cutte..

  Financing methods is considered back-door equity financing

Which of the following financing methods is considered a “back-door equity” financing?

  The initial cost of solar energy system

The initial cost of a solar energy system is $14,000. If this amount is paid with a 30% down payment and the balance is borrowed at 8% interest for 12 years, calculate the annual payments [A] and interest charges [B] for a market discount rate of 6%...

  Contrast the effects of dividends vs. stock repurchases

Compare and contrast the effects of dividends vs. stock repurchases, the pros and cons of each, and how the managers decide between the two.

  The presidents executive jet is not fully utilized

The president's executive jet is not fully utilized. You judge that its use by other officers would increase direct operating costs by only $20,000 a year and would save $100,000 a year in airline bills. Assume that the company does not pay taxes. Al..

  Financial statement analysis the specific purposes of this

financial statement analysis the specific purposes of this project are1. apply to real company the basic knowledge and

  Explain the role of government in international trade the

explain the role of government in international trade the various levels of economic integration and the impact on

  Relationship between dollar and euro at this exchange rate

Given the following Euro to $ Exchange rate of 1.46, what is the information contained in this quote? If the Purchasing Power Parity Theory is correct, what is true about the relationship between the US dollar and the Euro at this exchange rate?

  Question 1nbsp allen air lines must liquidate some

question 1nbsp allen air lines must liquidate some equipment that is being replaced. the equipment originally cost 12

  Calculate companys taxable income

ABC Co., a corporation had gross sales of $500,000 in 2008. Additionally, the company also received $100,000 in dividend income and $50,000 as interest income. The total expenditures of this company for 2008 were $272,000. Calculate company's taxable..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd