What is the most Northline should offer for the provider?
Give the COO a price ceiling. Say what you would verify before bidding.
The question
Northline can license a replacement product for $1.25m per year, or buy a provider and run its product for $0.35m per year. An acquisition also costs $0.40m to integrate, apart from the purchase price. Both options meet the same needs for two years. Ignore discounting and residual value. Northline values the provider only for replacing this license.
“What is the most Northline should offer for the provider?”
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A strong answer, step by step
Open each step in turn. This is one strong answer, not the only one.
Step 1: Compare like with like
“Licensing costs $2.50m over two years. Ownership costs $0.70m to run plus $0.40m to integrate, before the price.”
Why it works: Compare total cost over the same period.
Step 2: Set a ceiling
“At $1.40m the plans tie. I would bid below that ceiling to leave room for risk.”
Why it works: The ceiling is the most Northline can pay under the stated assumptions without spending more than the license.
Step 3: Update the ceiling
What would you do here? Open the move you’d make.
Lower the ceiling to $1.10m
The strong move. The $300,000 increase in integration cost cuts the ceiling by the same amount.
Keep the $1.40m ceiling
Tempting, but it misses something. This counts the old integration estimate.
Offer $1.20m
Tempting, but it misses something. The revised costs make this $100,000 more expensive than licensing.
See how a strong candidate says it
“Diligence now shows $0.70m of integration costs. I would lower the ceiling by $0.30m, to $1.10m.”
Why it works: The new cost comes out of the amount available for the purchase.
Step 4: Request evidence
“I would ask engineering to confirm the migration work and finance to confirm which expenses survive the acquisition.”
Why it works: The estimate must include costs that Northline still pays after buying.
The answer, in short
- Decision
- Bid below $1.40m initially. Revise the ceiling to $1.10m after diligence.
- Because
- At the ceiling, buying and licensing have equal two-year cost.
- What would change it
- Walk away if the seller demands $1.20m after the higher integration estimate.
Common traps
- Choosing before naming the binding constraint.
Check your answer
- Did I name the decision?
- Did I apply the constraint?
- Did I respond to the new fact?
- Did I name evidence to verify?
Last reviewed Nov 10, 2026