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Arundel Case

Satisfactory Essays

Assignment 10

1. Read and study “Introduction to Real Options”
2. Read and study CH 17 from McDonald: “Real Options”
3. Read and study CH33 from Hull: “Real Options”
4. Case: Arundel Partners: The Sequel Project

Answer the following questions:

a. What makes Arundel think it can make money by buying a package of sequel rights? Is the profit opportunity, if it exists, likely to be sustainable?

Arundel can make money selling the rights to a higher bid. Another option to make money is by producing the sequel exercising its rights but this will depend on if the net present value of the production movies is higher than the amount of buying the rights. If the future positive cashflows are undervalued Arundel can seek an arbitrage …show more content…

The option will change every time the volatility changes. Also, the Price and costs are different because the discount the producers are taking into account. The production might have a negative cost so maybe it won´t have the same profit than the sequel. If you have a standard deviation higher, the call will be

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