----------------------------------- spootyhead Apr 17‚ 2007 Arundel Partners Case Analysis ----------------------------------- Arundel Partners Case Analysis Executive Summary: A group of investors (Arundel group) is looking into the idea of purchasing the sequel rights associated with films produced by one or more major movie studios. Movie rights are to be purchased prior to films being made. Arundel wants to come up with a decision to either purchase all the sequel rights for
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Arundel Partners: The Sequel Project The maximum per-film price for the sequel rights that Arundel Partners should pay is $5.12M. If Arundel Partners were to use the traditional DCF methods to find the value of the sequel rights‚ the NPV would be -$8.42M loss per-film (see Appendix 1). Calculation Details We assume that Arundel Partners will purchase a portfolio of films similar to one used in the analysis. The average hypothetical net inflow of the sequel ($21.57M) is used to figure out the value
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Assuming that Arundel Partners is a purely financial company with no experience in the movie industry whatsoever‚ one reason for them to buy the rights to create sequels would be to exploit a possible arbitrage in between the price they would pay for an option to sequels and its real value. Therefore valuing the said option correctly is of the most importance. 1.2 We believe that portfolio negotiation rather than on a film-by-film basis will level the playing field. Since the partners do not have
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Case Write-Up: Arundel Partners 15.415 Finance Theory Section B‚ Oysters Arundel Partners: The Sequel Project With the purchase of sequel rights‚ what Arundel is achieving is to have a call option on the revenue that each movie brings. This helps to remove the uncertainty and risks associated with producing a movie‚ especially with regard to moviegoers’ taste. With the sequel right‚ Arundel will only exercise this option to produce a sequel if the first movie proved to be popular and the
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1. INTRODUCTION In 1992‚ Arundel Partners was looking into the idea of purchasing the sequel rights associated with films produced by one or more major movie studios. Movie rights were to be purchased prior to films being made. Arundel wanted to determine if this innovative business strategy is viable by estimating the value of the sequel rights. 2. OBJECTIVE Our report aims to investigate the viability of the implementation of Arundel’s strategy in purchasing sequel rights to produce
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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
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Why This is an Attractive Project The Arundel Partners’ believe that they can make money on this project as it allows them to capitalize on the idiosyncratic risk of the motion picture business. Producing and distributing motion picture films is a risky business due to the uncertainty of moviegoers’ tastes and a studio never knows if they have a blockbuster on their hands until after the movie has started production or even later after it has been released. The financial resources of even the largest
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business idea. The proposal was to create a new investment group‚ Arundel Partners‚ that would exist solely for the purpose of purchasing sequel rights to motion pictures produced by major U.S. movie studios. The proposal was unusual in that studios rarely sold rights to sequels prior to 1992‚ and interesting in the sense that it did not target specific movies or negotiate prices based on performance of the first movie. Instead‚ Arundel wanted to create a portfolio of options to produce all sequels
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The questions in this sample exam are mostly quantitative‚ but you should also expect some qualitative ones‚ such as true/false questions‚ on the exam. I did not include any here‚ as each true/false will require a different reasoning than others. Question 1: Consider a project with the following risk-free cash flows: t = 0 t = 1 t = 2 -40 20 25 Suppose that one year zero-coupon bonds yield 6% and two year zero-coupon bonds yield 8%. 1a) Find the NPV of the project.
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Proponents of this venture believe that Arundel should be able to make money by buying options to movie sequel rights as a portfolio of rights rather than on a film-by-film basis because they are diversifying their risk by spreading their options across multiple projects rather than a single movie. Arundel avoids trying to forecast how well the movie will do by purchasing the options to a group of movies ahead of time‚ thus they minimize the risk of moviegoers preferences changing. Past performances
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