The Consumer-Mart Company Is Going to Introduce a New Consumer

question 71

Multiple Choice

The Consumer-Mart Company is going to introduce a new consumer product.If brought to market without research about consumer tastes the firm believes that there is a 60% chance that the product will be successful.If successful,the project has a NPV = $500,000.If the product is a failure (40%) and withdrawn from the market,then NPV = -$100,000.A consumer survey will cost $60,000 and delay the introduction by one year.With a survey,there is an 80% chance of consumer acceptance,in which case the NPV = $500,000.If,on the other hand the product is a failure (20%) and withdrawn from the market,then NPV = -$100,000.The discount rate is 10%.By how much does the marketing survey change the expected net present value of the project?

• A)increases the NPV by $25,455
• B)decreases the NPV by $5950
• C)increases the NPV by $8955
• D)decreases the NPV by $25,455

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Definitions:

Nonprogrammed Decision

Decisions made in response to situations that are unique, poorly defined, and largely unstructured, requiring a custom-tailored solution.

Routine Situation

A scenario or circumstance that occurs regularly and is characterized by predictable patterns and a lack of novelty.

Job Description

A detailed summary of the duties, responsibilities, required qualifications, and reporting lines of a specific position within an organization.

Morphological Analysis

A method used to solve problems by breaking them down into their most basic components for analysis.