Should the company engage the market research group

Assignment Help Microeconomics

Reference no: EM132141006

Question: A company has already spent $80,000 developing a new product, and is now considering whether or not to market the product.

Tooling for production of the new product would cost $50,000.

If the product is produced and marketed, the company estimates that there is only one chance in four that the product would be successful. If successful, the net income would be $100,000 per year for 8 years.

If not successful, the company would lose $30,000 per year for 2 years, after which time the venture would be terminated. The minimum rate of return on the capital is 20% per year.

1. Draw a decision tree and determine the best alternative using the expected net present value criterion.

2. There is a market research group that can provide perfect information about the success or otherwise of the product at a cost of $20,000. Should the company engage the market research group? Your work should include a decision tree, relevant calculations and explanation to justify your answer.

Note: In your calculations for part (2) of the question, use the same probabilities for the outcomes of the market research as indicated above, i.e. one in four for success.

Reference no: EM132141006

Questions Cloud

Calculate the standard error of the mean : a. Calculate the standard error of the mean. b. What is the probability that the sample mean will be less than ?$1,885??

Fill in the probabilities to complete the tree diagram : Fill in the probabilities to complete the tree diagram below, and then answer the question that follows. Do not round any of your responses.

Why do some firms become leaders in their industry : What are disruptive technologies? Why do some firms become leaders in their industry?

Have you made any changes to in your lifestyle : Have you made any changes to in your lifestyle due to what you have learned? Give examples, of the changes you made and the techniques you used.

Should the company engage the market research group : There is a market research group that can provide perfect information about the success or otherwise of the product at a cost of $20,000.

What is the probability that both of them are women : If the company decides to select two persons randomly from these twelve candidates, what is the probability that both of them are women?

Prepare an essay on doctor-patient relationship : Prepare an essay on Doctor-patient relationship - The doctor-patient relationship has been and remains a keystone of care

What are your major takeaways : As we come to the end of this course, I would like you to reflect on last eight weeks and compare what you knew about our economic system at the beginning.

Discuss the rights of both families : COLLAPSE The Jones family plants pear trees on their property which is adjacent to the Smith family. The Smith family gets an external benefit from the Jones.

User Account

All Pages