Ang Electronics, Inc., has developed a new HD DVD. If the HD DVD is successful, thepresent value of the payoff at the time the product is brought to market) is $33.6 millionif the HD DVD fails, the present value of the payoff is $116 million. If the product goesdirectly to market, there is a 40 percent chance of success. Alternatively, the companycan delay the launch by one year and spend $1.26 million to test market the HD DVDTest marketing would allow the firm to improve the product and increase the probabilityof success to 70 percent. The appropriate discount rate is 12 percent.Calculate the NPV of going directly to market and the NPV of test-marketing beforegoing to market. (Do not round intermediate calculations and enter your answers indollars, not millions of dollars, rounded to nearest whole dollar amount, e.g..1,234,567)Go to market nowTest marketing firstShould the firm conduct test-marketing?O No20,400,000Yos

Payoff in success = $33,600,000Payoff in failure = $11,600,000Probability of success = 40%…

Answered: Ang Electronics, Inc, has developed a…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter14: Real Options

Section: Chapter Questions

Problem 4MC

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