B&B has a new baby powder ready to market. If the firm goes directly to the market with the product, there is only a 55 percent chance of success. However, the firm can conduct customer segment research, which will take a year and cost $1.18 million. By going through research, the company will be able to better target potential customers and will increase the probability of success to 70 percent. If successful, the baby powder will bring a present value profit (at time of initial selling) of $18.8 million. If unsuccessful, the present value payoff is only $5.8 million. The appropriate discount rate is 15 percent. Calculate the NPV for the firm if it goes to market immediately and if it conducts customer segment research. (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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B&B has a new baby powder ready to market. If the firm goes directly to the market with
the product, there is only a 55 percent chance of success. However, the firm can
conduct customer segment research, which will take a year and cost $1.18 million. By
going through research, the company will be able to better target potential customers
and will increase the probability of success to 70 percent. If successful, the baby powder
will bring a present value profit (at time of initial selling) of $18.8 million. If unsuccessful,
the present value payoff is only $5.8 million. The appropriate discount rate is 15 percent.
Calculate the NPV for the firm if it goes to market immediately and if it conducts
customer segment research. (Do not round intermediate calculations and enter your
answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,
1,234,567.89.)
Transcribed Image Text:B&B has a new baby powder ready to market. If the firm goes directly to the market with the product, there is only a 55 percent chance of success. However, the firm can conduct customer segment research, which will take a year and cost $1.18 million. By going through research, the company will be able to better target potential customers and will increase the probability of success to 70 percent. If successful, the baby powder will bring a present value profit (at time of initial selling) of $18.8 million. If unsuccessful, the present value payoff is only $5.8 million. The appropriate discount rate is 15 percent. Calculate the NPV for the firm if it goes to market immediately and if it conducts customer segment research. (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
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