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

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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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

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