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

question 19

Multiple Choice

The Consumer-Mart Company is going to introduce a new consumer product. If it is brought to market without research about consumer tastes, the firm believes that there is a 60 percent chance that the product will be successful. If successful, the project has a NPV = $500,000. If the product is a failure (40 percent) and withdrawn from the market, then NPV = −$100,000.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 percent chance of consumer acceptance, in which case the NPV = $500,000. If, on the other hand, the product is a failure (20 percent) and withdrawn from the market, then NPV = −$100,000. The discount rate is 10 percent. 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 $5,950
• C)Increases the NPV by $8,955
• D)Decreases the NPV by $25,455

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