Arundel Partners
Submitted by,
Anil Anjum
Nisar Ahmed
Murtaza Naqvi
Omer Akif
Arundel Partners: The Sequel Project
If the first movie was a success they would exercise their right and make the sequel or sell it to the highest bidder. Otherwise they would just write it off their investment schedule. The chances of making a profitable business would largely depend on a good estimate of the rights present value at the contract date. To less would not tempt the studios (inquiries indicated not less than USD 2 million per movie) and too much would not make the business profitable. Calculating the NPV of all the profitable sequels of a studio. The data used assumes that the sequel’s estimated negative cost and US theater rentals are 120% and 70% respectively, of the corresponding items for the first film.
In exhibit 7 we find the present value at year 4 and the PV of the negative cost at year 3 from the hypothetical sequels. Since the right of a film give us the opportunity to decide whether investing into the sequel is profitable, the decision is made on Year 3. If at that time the first film had no big success, the sequel would be immediately discarded, thus no investment would be made and the chances of loss would be null. We will only take into account those films which have a positive NPV. From the hypothetical sequel data from Exhibit 6 we discount the net inflows at year 4 and negative costs at year 3 to the present time at year 0. We use discounting rate of 12 %.
Calculating NPV from the table in Exhibit 6 below shows the 26 sequel films that have a positive NPV. The total sum of the 26 sequels account for 490.1 M$ which divided by all the 99 portfolio sequels gives us a price of 4.95M$ per film. Calculating the value of a right with the B-S-M model. This approach consists of using the B-S option pricing formula to model the portfolio right of the sequels. The variables of the BS model for a set of stochastic variables are So, K, r, T, and sigma. And we apply
Anil Anjum
Nisar Ahmed
Murtaza Naqvi
Omer Akif
Arundel Partners: The Sequel Project
If the first movie was a success they would exercise their right and make the sequel or sell it to the highest bidder. Otherwise they would just write it off their investment schedule. The chances of making a profitable business would largely depend on a good estimate of the rights present value at the contract date. To less would not tempt the studios (inquiries indicated not less than USD 2 million per movie) and too much would not make the business profitable. Calculating the NPV of all the profitable sequels of a studio. The data used assumes that the sequel’s estimated negative cost and US theater rentals are 120% and 70% respectively, of the corresponding items for the first film.
In exhibit 7 we find the present value at year 4 and the PV of the negative cost at year 3 from the hypothetical sequels. Since the right of a film give us the opportunity to decide whether investing into the sequel is profitable, the decision is made on Year 3. If at that time the first film had no big success, the sequel would be immediately discarded, thus no investment would be made and the chances of loss would be null. We will only take into account those films which have a positive NPV. From the hypothetical sequel data from Exhibit 6 we discount the net inflows at year 4 and negative costs at year 3 to the present time at year 0. We use discounting rate of 12 %.
Calculating NPV from the table in Exhibit 6 below shows the 26 sequel films that have a positive NPV. The total sum of the 26 sequels account for 490.1 M$ which divided by all the 99 portfolio sequels gives us a price of 4.95M$ per film. Calculating the value of a right with the B-S-M model. This approach consists of using the B-S option pricing formula to model the portfolio right of the sequels. The variables of the BS model for a set of stochastic variables are So, K, r, T, and sigma. And we apply