The founding partner of Compass Records, a little, free music-recording organization, must choose whether to "create and own" the following collection of a cutting-edge society artist or just "permit" her got done with recording. This case presents data adequate to fabricate income conjectures for either speculation elective. Reduced income (DCF) examination uncovers that permitting will be the more appealing option unless the understudy evaluates the estimation of the alternatives for taking after on collections included in the "produce-and-own" agreement.
Own VS License
Please assess the economic benefits of owning and producing an album versus licensing an artist’s recording. What are the initial outlays under either scenario? What are the benefits over time? Do the NPV and IRR results suggest that one scenario is superior to the other?
What uncertainties or qualitative considerations might influence your recommendation? How do variations in the forecasted sales affect the decision? Please estimate the impact on NPV from a change in your estimate of future sales for Adair Roscommon’s album.
What should Alison Brown do? Prepare a recommendation as to whether Compass Records should license Adair Roscommon’s next recording, or produce and own it.