# Option and Major Studios

FIN 4414 – Financial Management – Spring 2009 “Arundel” Case Assignment Due: March 23, 2009 Case: “Arundel Partners: The Sequel Project,” HBS, Case # 9-292-140, Revised 12/92. Main Question: Is \$2million per movie a fair price? Why or why not? Additional Questions 1. Provide a brief overview of the proposed venture. Clearly describe the relevant time line. 2. Why do the proponents of this venture believe that Arundel Partners can make money buying movie sequel rights? Why do they propose buying a portfolio of rights rather than negotiating the purchase price on a film-by-film basis?

Why do they propose to purchase the sequel rights at t=0 (before the first film is released) rather than at t=1? 3. Assuming a discount rate of 12% (risk free rate of 6% and a risk premium of 6%) calculate the NPV for all the sequels. Use the expected negative costs and the expected revenues given in Table 7. 4. Using the “decision-tree” approach, calculate the per-movie value of the sequel rights to the entire portfolio of 99 movies released in 1989 by the six major studios. . Assume that a maximum of ten sequels can be made in any given year. 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 portfolio of 99 movies released in 1989 by the six major studios. Assume once again that there is no maximum to the number of sequels that can be made in a given year). You must provide details of how you estimated the inputs to the B-S formula. a. Asset value b. Exercise price c. Volatility of asset returns d. Time to maturity e. Risk-free rate HINT: Note that the time to maturity of the options is when uncertainty is resolved not necessarily when the sequel is made. The asset value is what you will get if you exercised the option to make the sequel.

Again use average values for all the sequels. Similarly use the average value of the cost to make the sequels for the exercise price. Estimating standard deviation is a little trickier. Note that you do not have past information on returns to each sequel to estimate volatility for a sequel. However, you have information on a portfolio of sequels and you know the returns to these sequels and you could use these to estimate a standard deviation based on a cross-section of returns (DO NOT USE PRICE LEVELS).

Also the standard deviation should be based on all 99 sequels – that is it should be based on the entire distribution. 7. Carry out a sensitivity analysis of the value of the option to the values of the underlying asset, exercise price, and volatility. 8. What problems or disagreements would you expect Arundel and a major studio to encounter in the course of a relationship like the one described in the case? What contractual terms and provisions should Arundel insist on?

Calculate the price
Pages (550 words)
\$0.00
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
How it works
Receive a 100% original paper that will pass Turnitin from a top essay writing service
step 1
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
Pro service tips
How to get the most out of your experience with MyhomeworkGeeks
One writer throughout the entire course
If you like the writer, you can hire them again. Just copy & paste their ID on the order form ("Preferred Writer's ID" field). This way, your vocabulary will be uniform, and the writer will be aware of your needs.
The same paper from different writers
You can order essay or any other work from two different writers to choose the best one or give another version to a friend. This can be done through the add-on "Same paper from another writer."
Copy of sources used by the writer
Our college essay writers work with ScienceDirect and other databases. They can send you articles or materials used in PDF or through screenshots. Just tick the "Copy of sources" field on the order form.
Testimonials
See why 20k+ students have chosen us as their sole writing assistance provider
Check out the latest reviews and opinions submitted by real customers worldwide and make an informed decision.
History
Don't really see any of sources I provided, but elsewise its great, thank you!
Customer 452697, May 8th, 2021
Excellent job
Customer 452773, March 17th, 2023
excellent work
Customer 452773, October 6th, 2023
excellent, got a 100
Customer 452773, May 17th, 2023
Human Resources Management (HRM)
excellent job
Customer 452773, June 25th, 2023
English 101
great summery in terms of the time given. it lacks a bit of clarity but otherwise perfect.
Customer 452747, June 9th, 2021
fin571
EXCELLEN T
Customer 452773, March 21st, 2024
Excellent job
Customer 452773, March 9th, 2023
Philosophy
Thank you
Customer 452811, February 17th, 2024
Data 564
excellent work
Customer 452773, April 11th, 2024
Social Work and Human Services
Although it took 2 revisions I am satisfied but I did receive it late because of that.
Customer 452603, March 25th, 2021
excellent job
Customer 452773, March 12th, 2023
11,595
Customer reviews in total
96%
Current satisfaction rate
3 pages
Average paper length
37%
Customers referred by a friend
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat