Arundel case study 2
Arundel Partners will only produce films for which hypothetical NPV is greater than zero. Sensitivity Analysis Our scenario analysis Table 5 reveals the effect that the risk free rate and the volatility have on the price of the call option of the sequels.
When drafting the contract, a provision should be included regarding the payment structure. If the movie rights no longer belong to the movie studios they may put forth a lack-luster effort, because the financial success of this movie is no longer beneficial to them, creating a principal-agent problem.
Arundel partners case study solution scribd
Arundel's profitability. We use the Black-Scholes model to value the sequel rights. Pirotte 10 Solutions A. The volatility? Thirdly, we just used the average data of net inflows and negative cost of all the studios. All these things should Arundel and the studio take into consideration before making the deal, so they may have disagreements about these issues. Since the exhibits state that the values are already preset values, we have not rediscounted them. We then discounted the year three NPV back to year zero, when Arundel would be purchasing the portfolio of movies. Summary and Closing In closing, Arundel Partners can be a very successful and profitable firm. As they see interest grow for a particular movie, it may cause the studio to raise the price for the sequel rights. If the agreed upon per-film price exceeded the derived values, you will be out-of-the-money. It would be critically important to Arundel that a number of films and a price per film be agreed upon before either Arundel or the studio knew which films and the option of a sequel would be produced. We discounted it using the average year risk free rate in 7. You are on page 1of 6 Search inside document Day 1: Options review; valuing growth opportunities as options Arundel Partners Assignment: Review your notes on options from your earlier finance classes. Secondly, Arundel should also have studio retain an interest in the revenues or the net profits of the sequels, or to have rights for subsequent sequel, i.
The volatility? In order for you to make a more informed decision, we have also provided recommendations for this endeavor based off our findings.
We used an effective annual rate of Throughout the entirety of this report, we have taken many different approaches to better survey this idea so you can make a more informed decision.
This would significantly affect Arundel returns.
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