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Essay Arundel Partners Guidelines

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Guidelines for the Arundel Partners Case Assignment

This is a group project and only one case-report should be submitted

FIN 6425 – “Arundel Case” Guidelines Nimalendran

In this case, a movie industry analyst is asked to evaluate a proposed venture in which a group of partners would purchase the sequel rights to movies produced by the major studios. Your objective is to 1) discuss and evaluate the basic concept; 2) determine the value of the sequel rights on a per-movie basis; 3) evaluate the possible upside and potential drawbacks to the proposed plan. As you will see, the ideas here incorporate elements of capital budgeting coupled with a “real options” analysis.

Please provide answers to the following questions. You …show more content…

Beyond this broad understanding, you shouldn’t worry any more about how the specific numbers were estimated – but you should understand how to interpret them. For example for The ‘Burbs, the numbers in Exhibit 7 suggest that the value of the sequel at t=3 (using the suggested 12% discount rate) is :

NPV (at t=3) = $27.3/1.12 - $24 = $0.375 million.

It follows that the NPV at t=0 can be found by discounting the above number three years at 12% -- doing so you get a value of $0.2669 million – which is an estimate of what you pay for the sequel right at t=0.

Looking at this in terms of an internal rate of return – the one year return can be calculated as ($27.3/24) – 1=.1375 or 13.75% (this number has been rounded up to .14 or 14% in Exhibit 7). Note that whenever this IRR is above 12%, the sequel will be positive NPV.

5. Assume that a maximum of ten sequels can be made in any given year (choose the sequels that are most likely to be made—for example if the main character in the film dies then a sequel is unlikely to be made) Using the same decision-tree approach, what would you estimate to be the per-movie value of the sequel rights to the entire portfolio of 99 movies released in 1989 by the six major studios?

6. Using the Black-Scholes approach, calculate the per-movie value of the sequel rights to the entire

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