But you have to think about this from a user-friendly design perspective.
If you have a text field to the right of "Source folder", it implies to the user "Hm, I'm supposed to write something in here? Can I leave it blank? If I leave it blank, will it use a default folder name? Where will the files go exactly?"
It's too ambiguous.
However, since there are three distinct types of destinations, they should be separated by three distinct options. Nothing should overlap.
Option 1. Dump the converted files directly in the source folder itself where the source files exist
Option 2. Dump the converted files into a new subfolder inside the source location
Option 3. Dump the files into a specific folder in your filesystem or harddrive
That's why I created this "mock" screenshot to demonstrate how this can appear to the user. It's not ambiguous. It's very clear what each selection does: