Case ID: QA-0382
Solution ID: 39881

CyberLab A New Business Opportunity for PRICO A

Case Analysis

The president of a large and established manufacturer of laboratory equipment has to decide whether to invest $1 million for 30% equity in a start-up company in the field of lab robotics. The agreement would also allow his company the right to market the product. He already has a spreadsheet that projects the best guess of the future scenario and calculates several measures of performance (ROS, ROE, ROI, NPV, and IRR). He must decide which of the criteria are most useful. A relevant-cost issue that is introduced must be resolved, because it makes a big difference in the NPV. In the supplement, some background material is provided for a forecasting/judgmental assessment exercise based on this decision. The supplement could, assuming students have already been introduced to this topic, form the basis for a short workshop (an hour or less) on judgmental probability, or it could be used with a note on cumulative probability distributions for an introductory class on the topic. (The B case number is UVA-QA-0383, and a supplement to the A case is UVA-QA-0384.)

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