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

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 If the product is a failure (40 percent) and withdrawn from the market, then NPV = −$100,000.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 If, on the other hand, the product is a failure (20 percent) and withdrawn from the market, then NPV = −$100,000.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