You are considering making a \"Hillary\" action figure to capitalize on popular
ID: 2646042 • Letter: Y
Question
You are considering making a "Hillary" action figure to capitalize on popular political fever. Production will cost $5 million. If political fever strikes, you will sell action figures worth $20 million (in present value (PV)). If voters do not catch the political fever, you will only sell action figures worth $2 million (in PV) as only loyal Democrats will buy. Each possibility has a 50% chance. However, before production begins, you can conduct a marketing survey to determine which scenario will happen. The survey costs $1 million. Is it worth conducting the survey? Why?
A. Do not conduct the survey as the NPV with a survey = $5 million. B. Conduct the survey as the NPV with a survey = $6.5 million. C. Do not conduct the survey as the NPV without a survey = +$6 million. D. Do not conduct the survey as the NPV with a survey = $4 million.Explanation / Answer
Scenario probability Amount Px A
Strikes 0.50 20,000,000 20,000,000 x 0.50 = 10,000,000
Do not strikes 0.50 2,000,000 2,000,000 x 0.50 = 1,000,000
Expected PV 11,000,000
(-) Initial Cost -5,000,000
NPV = 6,000,000
Option C is correct.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.