Arundel Partners - 1040 Words

Case Write-Up: Arundel Partners 15.415 Finance Theory Section B, Oysters Arundel Partners: The Sequel Project With the purchase of sequel rights, what Arundel is achieving is to have a call option on the revenue that each movie brings. This helps to remove the uncertainty and risks associated with producing a movie, especially with regard to moviegoers’ taste. With the sequel right, Arundel will only exercise this option to produce a sequel if the first movie proved to be popular and the sequel is hence predicted to bring in profits. This provides downside protection, as huge losses (due to high production costs) associated with a failed movie will be avoided. Arundel plans to agree on the number of films and price per film†¦show more content†¦The company will not exercise the sequel right if they predict that the sequel will not be profitable based on the first movies’ performances. The downside of the investment is removed when we purchase the sequel right. To get an estimate of the call price, we use the average of PV of net inflows as the underlying asset, PV of negative costs as exercise price, standard deviation of return as volatility, and 1992 T-bill rate as the risk free rate. After plugging in these numbers into the Black-Scholes formula, we calculated that the average cost for a sequel option should be 9.2728. The main assumption we are making here is that our call option (sequel right) is for an average movie (i.e. if we decide to buy the right, we are willing to pay an average call option price of 9.2728 for each movie regardless of the studio it is produced from). However, in reality, the company will be negotiating the prices of the sequel rights with each studio. Thus, the quoted price we will get from each studio can be quite different from the overall average price we calculated since each studio’s expected performance is different from one another. The volatility we used is the industry volatility approximated from the standard deviation of returns from 99 movies’ sequel. When we are evaluating a quoted price of a sequel right, 9.2728 will be a good bench mark. According to our simple NPV analysis, we would reject theShow MoreRelatedArundel Partners3638 Words   |  15 PagesSCHOOL OF FINANCE MSc FINANCE Corporate Finance and Banking Arundel Partners: The Sequel Project The East Wind Amol Marathe 140843 Linglan Tan 140838 Xiangyu Zhou 140912 Date: 20/11/2014 Arundel Partners: The Sequel Project The East Wind Executive Summary: Arundel group is looking into the project of purchasing the sequel rights associated with films produced by one or more major movie studios in United States. Arundel believes that they can calculate a value for the rights to produceRead MoreArundel Partners1808 Words   |  8 Pages1. INTRODUCTION In 1992, Arundel Partners was looking into the idea of purchasing the sequel rights associated with films produced by one or more major movie studios. Movie rights were to be purchased prior to films being made. Arundel wanted to determine if this innovative business strategy is viable by estimating the value of the sequel rights. 2. OBJECTIVE Our report aims to investigate the viability of the implementation of Arundels strategy in purchasing sequel rights to produceRead MoreArundel Partners1802 Words   |  8 Pages1. INTRODUCTION In 1992, Arundel Partners was looking into the idea of purchasing the sequel rights associated with films produced by one or more major movie studios. Movie rights were to be purchased prior to films being made. Arundel wanted to determine if this innovative business strategy is viable by estimating the value of the sequel rights. 2. OBJECTIVE Our report aims to investigate the viability of the implementation of Arundels strategy in purchasing sequel rights to produce potentialRead MoreArundel Partners Case1423 Words   |  6 Pagesï » ¿Arundel Partners: The Sequel Project The maximum per-film price for the sequel rights that Arundel Partners should pay is $5.12M. If Arundel Partners were to use the traditional DCF methods to find the value of the sequel rights, the NPV would be -$8.42M loss per-film (see Appendix 1). Calculation Details We assume that Arundel Partners will purchase a portfolio of films similar to one used in the analysis. The average hypothetical net inflow of the sequel ($21.57M) is used to figure out theRead MoreSolutions to Arundel Partners Case1450 Words   |  6 Pagessolutions to arundel partners case http://www.justanswer.com/law/0vnrc-solutions-arundel-partners-case.html Executive Summary:   A group of investors (Arundel group) is looking into the idea of purchasing the sequel rights associated with films produced by one or more major movie studios. Movie rights are to be purchased prior to films being made. Arundel wants to come up with a decision to either purchase all the sequel rights for a studios entire production during a specified period of timeRead MoreEssay Arundel Partners Guidelines922 Words   |  4 PagesGuidelines for the Arundel Partners Case Assignment This is a group project and only one case-report should be submitted FIN 6425 – â€Å"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) evaluateRead MoreArundel Partners: The Sequel Project2717 Words   |  11 Pagesout with a new business idea. The idea was to create an investment group, Arundel Partners, to purchase the sequel rights associated with films produced by one or more major U.S. movie studios. As owner the rights, Arundel would wait to see if a movie was successful, and then decide whether or not to produce a second film based on the story or characters of the first. One of the unique features of the new idea was that Arundel would purchase sequel rights before the first films were even made and releasedRead MoreArundel Partners: the Sequel Project1339 Words   |  6 PagesArundel Partners: The Sequel Project The maximum per-film price for the sequel rights that Arundel Partners should pay is $5.12M. If Arundel Partners were to use the traditional DCF methods to find the value of the sequel rights, the NPV would be -$8.42M loss per-film (see Appendix 1). Calculation Details We assume that Arundel Partners will purchase a portfolio of films similar to one used in the analysis. The average hypothetical net inflow of the sequel ($21.57M) is used toRead MoreAnalysis Of The Movie Arundel Partners 779 Words   |  4 PagesArundel Partners wants to buy the rights to produce the sequels in advance rather than negotiating on a film-by-film basis because otherwise, the studios will have an informational advantage. Later on in the production process, studios will have a greater idea of the quality of the film, making them less likely to sell the rights to more profitable sequels. Advanced rights to the entire portfolio of films mitigates this informational asymmetry and creates an options-pricing model for Arundel. ThereRead MoreArundel Partners: the Sequel Projects5474 Words   |  22 Pageswould you recommend to Zelnick and Conroy? Specifically, what should the strategy and organizational| | |structure of BMG’s digital operations be? Should BMG continue to work with a wide array of technology | | |partners? Why or why not? | | |Evaluating Firm Strengths and | | |