Question: Really, It's an Option. Burleigh Tech has developed an optioned strategy to compete in a new software market. Its new software package is a security product that identifies a cyberattacker entering a network and responds to the attack with a counterattack on the hacker's system. The counterattack is designed to disable the attacker's PC. Burleigh has named its system Seeker. Currently, Seeker is in a beta version, and Burleigh is awaiting legal clearances before Seeker can be released.
There are three to four other high-tech firms developing similar counterattack software. Burleigh has invested $250,000 in developmental costs for the software, and the company is positioned to be the first high-tech firm to release such a package. Burleigh's lawyers have estimated there is a 75 percent probability that legal issues will be settled after one year. At that time, Burleigh can invest another $500,000 into the development and release a commercial version of Seeker. Assuming all legal hurdles are overcome and Seeker. Assuming all legal hurdles are overcome and 50 chance of earning either $1,000,000 or $4,000,000 in profits during the first year Seeker is sold. On Thanksgiving Day, Melvin Poluce, one of Burleigh's programmers, came into the office and stole the coding for the software. At the same time, he destroyed the files that would have allowed Burleigh to restore the coding for the software. As of the end of the year, Melvin has not been caught. Burleigh's leading edge in the counterattack software market has been destroyed and Burleigh has decided to abandon the project. Determine the option loss that Burleigh has suffered assuming the company's cost of capital is six percent.