Problem:
The manager for a growing firm is considering the launch of a new product. If the product goes directly to market, there ia a 40 percent chance of success. For $90.000, the manager can conduct a focus group that will increase the product's chance of success to 60 percent. Alternatively, the manager has the option to pay a consulting firm $325,000 to research the market and refine the product. The consulting firm successfully launches new products 85 percent of the time. If the firm successfully launches the product, the payoff will be 41,450,000.
Required:
Question: If the product ia a failure, the NPV is $0. Which action will result in the highest expected payoff to the firm?
Note: Please show the work not just the answer.