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Option and Major Galleries

 Option and Major Companies Essay

FIN 4414 – Economical Management – Spring 2009

" Arundel” Case Task

Due: Mar 23, 2009

Case: " Arundel Lovers: The Follow up Project, ” HBS, Case # 9-292-140, Revised 12/92.

Main Question: Is $2million per video a fair price? Why or why not?

Further Questions

1 ) Provide a quick overview of the proposed venture. Clearly illustrate the relevant time line.

2 . Why do the proponents of this venture believe that Arundel Companions can make funds buying motion picture sequel privileges? Why do they offer buying a collection of legal rights rather than settling the purchase price over 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. If, perhaps a discount price of 12% (risk cost-free rate of 6% and a risk premium of 6%) estimate the NPV for all the sequels. Use the expected negative costs and the predicted revenues succumbed Table 7.

4. Making use of the " decision-tree” approach, calculate the per-movie value with the sequel rights to the complete portfolio of 99 movies released in 1989 by the six major studios.

your five. Assume that a maximum of ten sequels can be made in any given 12 months. Using the same decision-tree procedure, what do you estimate as the per-movie value of the sequel rights to the entire collection of 99 movies released in 1989 by six main studios?

6. Making use of the Black-Scholes approach, calculate the per-movie value of the sequel rights towards the entire collection of 99 movies released in 1989 by six main studios. (Assume once again that there is no optimum to the quantity of sequels that may be made in the year). You have to provide details of how you believed the inputs to the B-S formula. a. Asset value

b. Workout price

c. Volatility of asset returns

d. Time to maturity

at the. Risk-free price

HINT: Remember that the time to maturity of the alternatives is when uncertainty is definitely resolved not really when the...

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