ABC Co is considering the launch of a new widget.  If the product goes directly to the market, there is a 40% chance of success.  For $250,000, the manager can conduct a focus group to increase the probability of success to 60%.  Alternatively, the manager can pay a consulting firm $4,000,000 to research the market and refine the product.  The consulting firm successfully launches new products 80% of the time.  If the firm successfully launches the widget, the payoff will be $20 million.  If the product is a failure, the NPV is $0.  Based on your analysis, ABC should: a. take the product directly to market b. hire the consulting firm c. conduct a focus group

Pou are CEO of Rivet Networks, maker of ultra-high performance network cards for gaming computers, and you are considering whether to launch a new product. The product, the Killer X3000, will cost $907,000 to develop up front (year 0), and you expect revenues the first year of $798,000, growing to $1.58 million the second year, and then declining by 45% per year for the next 3 years before the product is fully obsolete. In vears 1 through 5, you will have fixed costs associated with the product of $105,000 per year, and variable costs equal to 55% of revenues. a. What are the cash flows for the project in years 0 through 5? D. Plot the NPV profile for this investment using discount rates from 0% to 40% in 10% increments. c. What is the project's NPV if the project's cost of capital is 10.7%? d. Use the NPV profile to estimate the cost of capital at which the project would become unprofitable; that is, estimate the project's IRR. a. What are the cash flows for the project in years 0…

Fethe's Funny Hats is considering selling trademarked, orange-haired curly wigs for University of Tennessee football games. The purchase cost for a 2-year franchise to sell the wigs is $20,000. If demand is good (40% probability), then the net cash flows will be $25,000 per year for 2 years. If demand is bad (60% probability), then the net cash flows will be $5,000 per year for 2 years. Fethe's cost of capital is 10%. a. What is the expected NPV of the project? Round your answer to the nearest dollar. 2562 $ b. If Fethe makes the investment today, then it will have the option to renew the franchise fee for 2 more years at the end of Year 2 for an additional payment of $20,000. In this case, the cash flows that occurred in Years 1 and 2 will be repeated (so if demand was good in Years 1 and 2, it will continue to be good in Years 3 and 4). Use the Black-Scholes model to estimate the value of the option. Assume the variance of the project's rate of return is 0.2624 and that the risk-free…

Wally loves your analysis. He has now asked you to evaluate potential new project investments. Both projects aim to make widgets. Widgets sell for $10 each. Project A will produce 4,500 units in the first year, 6,500 units in the second and third years and a whopping 44,000 units in the fourth year. Project A requires an investment of 3 machines each costing $25,000. Project B will produce 2,400 units in the first year, 2,200 units in the second year, 1,950 units in the third year and 1,460 units in the fourth year. Project B requires an initial investment of 1 machine worth $25,000. Wally has said that to make the analysis easier - you need not calculate depreciation on the machine, the tax shelter benefit or the residual value of the machine at the end of production. Wally just said I want you understand the cash flows from the information provided above. (a) Calculate the net present value for each of Project A and Project B, assuming a 15% cost of capital. (b) What is the IRR of…