Arundel case study
Arundel Partners Case Study
Arundel Partners
10201 W Pico Boulevard
Los Angeles, CA 90064
Arundel Senior Management:
After a thorough investigation into the venture you are considering, we have the following data and analysis for your review. In order for you to make a more informed decision, we have also provided recommendations for this endeavor based off our findings. 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. We have formatted this formal report to be easy to understand, as well as, comprehensive.
Analysis Methods
Net Present Value
Decision Tree Analysis
Black-Scholes Model
We used the above methods to determine the appropriate value of the option for the sequel rights under each scenario. This value can be looked at as the maximum price to pay, given that it is the highest value you can expect to earn. If the agreed upon per-film price exceeded the derived values, you will be out-of-the-money.
Conclusion
After carrying out each valuation approach, we found maximum price to pay per film was around the same under each method.
Method
Maximum Per-Film Price (in millions)
Net Present Value
$4.88
Decision Tree Analysis
$4.896
Black-Scholes Model
$4.56
We recommend not paying above $4.56 million per film as given by the Black-Scholes model. This figure is the most conservative value we found throughout our real options analysis.
Problem Statement
The investment group, Arundel Partners, is seeking to create an innovative business where the ability to create and produce movie sequels is transformed into an option market. This will be achieved in two ways: buying the sequel rights to a film prior to the first movie being released, and purchasing an entire portfolio of films from major movie companies to achieve
Arundel Partners
10201 W Pico Boulevard
Los Angeles, CA 90064
Arundel Senior Management:
After a thorough investigation into the venture you are considering, we have the following data and analysis for your review. In order for you to make a more informed decision, we have also provided recommendations for this endeavor based off our findings. 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. We have formatted this formal report to be easy to understand, as well as, comprehensive.
Analysis Methods
Net Present Value
Decision Tree Analysis
Black-Scholes Model
We used the above methods to determine the appropriate value of the option for the sequel rights under each scenario. This value can be looked at as the maximum price to pay, given that it is the highest value you can expect to earn. If the agreed upon per-film price exceeded the derived values, you will be out-of-the-money.
Conclusion
After carrying out each valuation approach, we found maximum price to pay per film was around the same under each method.
Method
Maximum Per-Film Price (in millions)
Net Present Value
$4.88
Decision Tree Analysis
$4.896
Black-Scholes Model
$4.56
We recommend not paying above $4.56 million per film as given by the Black-Scholes model. This figure is the most conservative value we found throughout our real options analysis.
Problem Statement
The investment group, Arundel Partners, is seeking to create an innovative business where the ability to create and produce movie sequels is transformed into an option market. This will be achieved in two ways: buying the sequel rights to a film prior to the first movie being released, and purchasing an entire portfolio of films from major movie companies to achieve