Scor-Estore Case Writeup
Value of Four Ideas:
Please see Exhibit-1 for just option prior to Lance Bernard meeting his friends. If the company is successful, he would get an end value of $68.5K for an investment of $90K with a net loss of ($21.5K).
Please see the Exhibit-2 for application of Real Options in this scenario, there are at least 4 other ways this can evaluated as profitable opportunity. 1. Viewer is Functional and Website is a success: This is highly profitable if this is accomplished. The return will be $500K. Discounting it at 20%, it will be $456K. Net Gain will be = $456 - $90K = $366K 2. Viewer is Functional but Website is failure: If the website is a failure, exploring further the option of abandoning the website and sell the software. It takes $25K to shrink-wrap the software and develop a sell version. The software can be sold for $450K. Lance Bernard’s share will be $125K, discounting at 20% it will be $114K. The net gain will be $114K - $90K = $24K 3. Viewer is Non-Functional but Website is a Winner: In this case, the business could switch to a license of an alternate viewer. Assuming the website can be sold to the owner of other viewer, the business could get $300K for the sale. Lance Bernard’s share will be $100K. Discounting it at 20% it will be $91K. The net gain will be $91K - $90K = $1K. 4. Expanding the website with additional capabilities: Expanding the website with additional capabilities to composers, website can earn free copies of other works or royalties. This additional capability could take additional 6 months, and $450K in investment. Lance Bernard will put one third of this amount. This will turn the company into profitability and will be valued much higher.
Just considering the first three options above and calculating their net additional value, it will be $27.5K. Comparing with the original opportunity and Lance Bernard’s initial loss of $21.5K, the above three ideas have increased the value of the opportunity by $49K.
Other
Please see Exhibit-1 for just option prior to Lance Bernard meeting his friends. If the company is successful, he would get an end value of $68.5K for an investment of $90K with a net loss of ($21.5K).
Please see the Exhibit-2 for application of Real Options in this scenario, there are at least 4 other ways this can evaluated as profitable opportunity. 1. Viewer is Functional and Website is a success: This is highly profitable if this is accomplished. The return will be $500K. Discounting it at 20%, it will be $456K. Net Gain will be = $456 - $90K = $366K 2. Viewer is Functional but Website is failure: If the website is a failure, exploring further the option of abandoning the website and sell the software. It takes $25K to shrink-wrap the software and develop a sell version. The software can be sold for $450K. Lance Bernard’s share will be $125K, discounting at 20% it will be $114K. The net gain will be $114K - $90K = $24K 3. Viewer is Non-Functional but Website is a Winner: In this case, the business could switch to a license of an alternate viewer. Assuming the website can be sold to the owner of other viewer, the business could get $300K for the sale. Lance Bernard’s share will be $100K. Discounting it at 20% it will be $91K. The net gain will be $91K - $90K = $1K. 4. Expanding the website with additional capabilities: Expanding the website with additional capabilities to composers, website can earn free copies of other works or royalties. This additional capability could take additional 6 months, and $450K in investment. Lance Bernard will put one third of this amount. This will turn the company into profitability and will be valued much higher.
Just considering the first three options above and calculating their net additional value, it will be $27.5K. Comparing with the original opportunity and Lance Bernard’s initial loss of $21.5K, the above three ideas have increased the value of the opportunity by $49K.
Other