Arundel Partners The Sequal Project Case Solution

Case Solution

Several traders is considering buying the follow-up rights for just about any portfolio of films. They need to work out how much to supply to cover and the way to structure a contract with numerous major U.S. film art galleries. The case includes earnings estimations for individuals major films released within the united states . States throughout 1989. These data are employed to generate estimations of the requirement for follow-up rights right before the initial film's release. Designed to introduce students to real options and techniques for prices them. It clearly demonstrates the power of option prices approaches for a variety of capital budgeting problems. Also demonstrates the sensible limitations of those techniques.

Excel Calculations

Discount Rate, Average PV of Inflows at Year 4, Average PV of Outflows at Year 3,  Total No of Movies, Average NPV at Year 0, Maximum Payment per Sequel Rights

Questions Covered

Why do the principals of Arundel Partners think they can make money buying movie sequel rights? Why do the partners want to buy a portfolio of rights in advance rather than negotiating film-by-film to buy them?

Estimate the per-film value of a portfolio of sequel rights such as Arundel proposes to buy. [There are several ways to approach this problem, all of which require some part of the dataset in Exhibit 6-9. You may find it helpful to consult the Appendix, which explains how these figures were prepared.]

What are the primary advantages and disadvantages of the approach you took to valuing rights? What further assistance or data would you require to refine your estimate of the rights’ value?

What problems or disagreements would you expect Arundel and a major studio to encounter in t