B&B has a new baby powder ready to market. If the firm goes directly to the market with the product, there is only a 55 percent chance of success. If successful, the baby power will net a present value (at time of initial selling) of $28 million If unsuccessful, the present value payoff is only $4 million. However, the firm can conduct customer segment research, which will take a year and cost $1.8 million. By going through research, B&B will be able to better target potential customers and will increase the probability of success to 70 percent. Should the firm conduct customer segment research or go directly to market? What is the value of the option to delay? The appropriate discount rate is 15 percent.
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